• Cash and cash equivalent

    Cash and cash equivalents are the most liquid assets found within the asset portion of a company's balance sheet. Cash equivalents are assets that are readily convertible into cash, such as money market holdings, short-term government bonds or Treasury bills, marketable securities and commercial paper. Cash equivalents are distinguished from other investments through their short-term existence; they mature within 3 months whereas short-term investments are 12 months or less, and long-term investments are any investments that mature in excess of 12 months. Another important condition a cash equivalent needs to satisfy is that the investment should have insignificant risk of change in value; thus, common stock cannot be considered a cash equivalent, but preferred stock acquired shortly before its redemption date can be.

    Types of cash equivalents
    While all cash equivalent investments are similar in providing liquidity and price stability, there are some important differences among the four major types of investments in this category: certificates of deposit (CDs), U.S. Treasury bills (T-bills), bank money market accounts, and money market mutual funds.

    Some cash equivalents, such as money market accounts and money market funds, offer greater liquidity — or access to your money — while others, such as CDs, offer less liquidity but may pay higher rates of interest.

    And some cash investments are insured while others aren't. The advantage of insurance is that you can be confident that your money is safe. But the drawback is that insured accounts typically pay a lower rate of interest than uninsured accounts.

    Some experts also consider short-term bond funds as cash equivalent investments since they are highly liquid and their value is fairly stable. But unlike any other cash equivalents, you can realize capital gains or capital losses when you sell these funds.

    Certificates of deposit
    Certificates of deposit (CDs), also known as time deposits, pay interest for a fixed term, usually at a fixed rate. The shortest CD term is usually three months and the longest is five years. In general, the longer the term is, the higher the rate the CD pays. That's to compensate you for tying up your money for a longer period. You can always withdraw money from a CD before its maturity date, but you may forfeit some or all of the interest you expected to earn.

    U.S. Treasurys

    U.S. Treasury bills (T-bills) are short-term government debt securities that are available in 4-, 13-, and 26-week terms. They're considered cash investments because of their short duration and their U.S. government backing. In fact, they're sometimes described as risk-free investments, and serve as the standard against which the risk posed by other investments is measured.

    Money market investments
    Money market accounts and money market funds, offered by banks and mutual funds respectively, resemble checking accounts in that they offer the highest degree of liquidity. For example, you can write checks against your account, withdraw cash, or have the money transferred between accounts the same business day.

    But money market accounts and funds pay higher interest rates than interest-bearing checking accounts or regular savings accounts because they typically require higher minimum deposits.

    Money market accounts are available at most local, national, and online banks. Most accounts have check-writing privileges, though there's often a limit on the number of checks you may write per month without incurring a fee. Each check may have to be written for a minimum amount set by the bank. And you may be charged a fee or lose some interest if your account balance falls below the bank's minimum.

    Money market funds are available from most mutual fund companies, either as taxable or tax-free accounts. All money market funds make very short-term investments to maintain their value at $1 a share. Taxable funds buy various types of corporate and government debt, while tax-free funds buy municipal debt.

    source :
    Wikipedia
    Path to investing

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  1. yes i agree with you Cash and cash equivalents are the most liquid assets found within the asset portion of a company's balance sheet. our credow Accounting firm provides cash flow analysis

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