Cash is used to run the business and its daily activities and mostly is in the form of cash in hand or bank balance. Cash equivalents can be defined as readily liquid assets and investments which can be converted into cash at a short notice. For example: government bonds, Commercial Paper (CP), CDs and Treasury Bills etc.
Features of Cash Equivalents
Features of Cash Equivalents are: 1. Cash Equivalents are investments which can be converted into cash within 90 days. 2. These are instruments which carry low or minimum risk. 3. The interest earned is already known and the value which will be achieved post conversion to cash is also known.
Uses of Cash Equivalents
Uses of Cash Equivalents are: a) Savings for the future b) Can be used for paying short-term debts and during emergencies c) Can be used as a Guarantee/part of company’s asset