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Question
An investment qualifies as a cash equivalent only when it has a maturity period of ______ month(s) or less from the date of acquisition.
Options
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Solution
An investment qualifies as a cash equivalent only when it has a maturity period of three month(s) or less from the date of acquisition.
Explanation:
Under standard accounting principles (such as US GAAP and IFRS), an investment qualifies as a cash equivalent only when it has a short maturity period of three months or less from its date of acquisition. Cash equivalents are highly liquid, short-term investments that are readily convertible to known amounts of cash. They carry an insignificant risk of changes in value due to interest rate fluctuations. Common examples include Treasury bills, commercial paper, and money market funds, provided they meet this strict three-month timeline from the time they were purchased.
