ash and Cash Equivalents

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According to International Accounting Standard 7 (IAS 7), Cash “comprises cash on hand and
demand deposits”. And cash equivalents “are short-term, highly liquid investments that are readily
convertible to known amounts of cash and which are subject to an insignificant risk of changes in
value”.
Cash
Cash is the money in the form of currency. Currency includes currency notes and coins. Any
currency notes and coins held by an enterprise are part of the term “cash”.
Demand deposit is a type of an account from which funds can be withdrawn at any time without
having to inform the bank or depository institution. Most of the checking and saving accounts are
demand deposits.
Cash Equivalent
Cash equivalents are investments that can be readily converted to cash. Common examples of cash
equivalents include commercial paper, treasury bills, short term government bonds, marketable
securities, and money market holdings. An item should satisfy the following criteria to qualify for
cash equivalent.
 The investment should be short term. They should mature in less than three months. If they
mature in more than three months they will be classified as other investments.
 They should be highly liquid. This means that they should be easily sold in the market. The
buyers of these investments should be easily available.
 They should be convertible to known amounts of cash. This means that their market price
should be available and this market price should not be subject to significant fluctuations.
 They should not be too risky. There should be very little risk of changes in their value. This
means that equity shares cannot be classified as cash equivalents. But preferred shares
purchased shortly before the redemption date can be classified as cash equivalents.
In short, cash and cash equivalents mean the cash and those assets which are immediately
convertible to cash. Cash and cash equivalents are the most liquid assets of any business. Cash
and cash equivalents are very important for the liquidity of a business. A company should have
sufficient cash and cash equivalents to meet its urgent liabilities when they fall due.  
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See also
 Current Assets
 International Financial Reporting Standards (IFRS)
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QuoteGuest, 3 December, 2012
thank you
QuoteNikko Jay Labanda, 3 December, 2012
thanks
QuoteGuest, 14 January, 2013
THANKS ALOT
QuoteGuest, 13 March, 2013
Can deposit at reserve bank be a cash equivalent
QuoteGuest, 13 March, 2013
or interbank deposits at reserve bank can it be a cash equivalent