What are cash and cash equivalents?

Cash and cash equivalents are either cash or assets readily convertible into cash. Any items falling within this definition are classified within the current assets category on the balance sheet.

Examples of cash are:

• Coins
• Currency
• Cash in checking accounts
• Cash in savings accounts
• Bank drafts
• Money orders
• Petty cash

Examples of cash equivalents are:

• Commercial paper
• Marketable securities
• Money market funds
• Short-term government bonds
• Treasury bills

The two primary criteria for classification as a cash equivalent are that an asset be readily convertible into a known amount of cash, and that it be so near its maturity that there is an insignificant risk of changes in value due to changes in interest rates.

Cash and cash equivalents information is sometimes used by analysts in comparison to a company's current liabilities to estimate it ability to pay its bills in the short term.

Related Topics

Balance sheet overview
How to prepare a cash flow statement
Should there be negative cash on the balance sheet?
Statement of cash flows overview
What is cash flow?