Cash & Cash Equivalents
What Does Cash & Cash Equivalents Means?
Cash and cash equivalents is a line item on the balance sheet that shows cash and assets that can be turned into cash immediately.
![cce1](https://seeaccountingnow.online/wp-content/uploads/2020/04/cce1.jpg)
How it Works
At period-end, the business will prepare a balance sheet.
![cce2](https://seeaccountingnow.online/wp-content/uploads/2021/06/cce2.jpg)
The balance sheet shows the business’s assets.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/cce3.jpg)
Asset accounts show money the business has and things it owns.
![cce4](https://seeaccountingnow.online/wp-content/uploads/2021/06/cce4.jpg)
Part of the balance sheet shows current assets.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/cce5.jpg)
Current assets are those that can be converted to cash in the coming 12-month period.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/cce6.jpg)
Included in the current assets section is a line item known as cash and cash equivalents.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/cce7.jpg)
Cash and cash equivalents are those things that can be turned into cash, immediately.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/cce8.jpg)
This will include money held in the bank.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/cce9.jpg)
It will also include any holdings of foreign currency.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/cce10.jpg)
Cash equivalents also include things like commercial paper or treasury bills.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/cce11.jpg)
To be considered a cash equivalent, the security needs to have a maturity of less than 3 months.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/cce12.jpg)
It also needs to be highly liquid or easily converted to cash.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/cce13.jpg)
Analysts and management monitor cash and cash equivalents closely.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/cce14.jpg)
They compare it to the short term debt obligations.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/cce15.jpg)
This shows the company’s ability to pay its bills, quickly.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/cce16.jpg)
© R.J. Hickman 2020