1 page/≈275 words
Accounting, Finance, SPSS
Difference between cash and cash equivalents (Case Study Sample)
What is the difference between cash and cash equivalents? Are they reported similarly or differently? Provide several examples of each.source..
Difference between cash and cash equivalents
This is a case study defining and differentiating cash and cash equivalents. It describes the various examples of each. It finally illustrates how companies and organizations report cash and cash equivalents in their financial statements.
From the definition, cash is defined as the aggregate amount of coins, paper money (notes), money orders, checks and the money that is deposited by the company into bank accounts but with some financial instructions as to how and when they may be accessed.
While, cash equivalents refers to all the highly liquid investments that are accessed within a short time period. During financial operations in an enterprise or company, the amount invested in it is always anticipated to be convertible into a known amount of solid cash and mature such that its value in the market insensitive to changes in the interest rates. The change period for this investment is fixed to period not exceeding 90 days (Walton, 1997). Cash equivalents include market holdings, treasury bills, commercial paper, short term government bonds and marketable securities. All these cash equivalents are highly regarded so as to retain an insignificant risk of change in its value. For this reason, stock in an investment should not be classified under cash equivalents since its price or value usually change over time (IFRS, 2013).
Despite them being not cash, cash equivalents are presented on the same financial statements with cash but using the title, â€˜cash and cash equiva...
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