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Cash Equivalents

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Submitted By kbeau2ful
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ACC 301- Managerial Accounting
Weekly Paper
Gwynedd Mercy University
Kaydene Grant

Cash Equivalents By definition Cash equivalents are “assets that are readily convertible into cash within 3 months” (Charels T. Horngren) Examples of cash equivalents are marketable securities, money market funds, short-term government bonds, and treasury bills. Cash equivalents are essential because the amount of cash on hand indicates an organization’s liquidity. Organizations liquidity is the ability to cover upcoming planned and unplanned expenses. Cash equivalents fall under the same category because these assets are converted to cash usually within hours or days. According to International Financial Reporting Tool the following criteria qualify items to be cash equivalents…” The investments should be short term which means it matures in less than three months, they should be convertible to known amounts of cash which means market price should not be subject to significant fluctuations, and they should not be too risky.” (Cash and Cash Equivalents) The amount of cash and cash equivalents an organization holds is a large component of a company’s overall operating strategy. For example, I want to start a T-Shirt company called “Beau2ful”. If Beau2ful has high amounts of cash and cash equivalents it would be able to get through difficult times when sales are low or when expenses are extremely high.

References

Cash and Cash Equivalents. (n.d.). Retrieved from International Financial Reporting Tool: www.readyratios.com
Cash and Cash Equivalents CCE. (n.d.). Retrieved from Investing Answers: www.investinganswers.com
Charels T. Horngren, W. T. (n.d.). Accounting Ninth Edition. Upper Saddle River, New Jersey: Prentice Pearson

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