Question

Short Answer Question:

State the meaning of the term: Cash Equivalents

What is meant by Cash equivalents?

Answer 1

Cash equivalents are short-term, highly liquid investments that are readily convertible into cash and are subject to an insignificant risk of change in value. In other words, cash equivalents are held to meet short-term cash commitments rather than for investment or any other purpose. An investment for short-term maturity, say three months, can be regarded as a cash equivalent. Some examples of cash equivalents are treasury bills, commercial papers, etc.