Cash Equivalents are short-term highly liquid company assets that can be easily converted to cash and are not subject to any significant changes in value.
They are classified as current assets on the Balance Sheet.
There are very rigorous standards for an asset to be classified as a cash equivalent.
Examples of Cash Equivalents
Since they are highly liquid and can be easily converted to cash, they perform a dual role of providing a company with minimal returns as well as providing a 'safety net' in case the company goes through a downturn and is in immediate need to pay its bills.
The International Accounting Standard 7 (IAS 7) is an accounting standard that establishes standards for cash flow reporting used in the International Financial Reporting Standards.
It requires the presentation of information about the historical changes in cash and cash equivalents of an entity by means of a statement of cash flows.
You can find more information about IAS 7 here.
The content provided on accountingsuperpowers.com and accompanying courses is intended for educational and informational purposes only to help business owners understand general accounting issues. The content is not intended as advice for a specific accounting situation or as a substitute for professional advice from a licensed CPA. Accounting practices, tax laws, and regulations vary from jurisdiction to jurisdiction, so speak with a local accounting professional regarding your business. Reliance on any information provided on this site or courses is solely at your own risk.
Tax and accounting rules and information change regularly. Therefore, the information available via this website and courses should not be considered current, complete or exhaustive, nor should you rely on such information for a particular course of conduct for an accounting or tax scenario. While the concepts discussed herein are intended to help business owners understand general accounting concepts, always speak with a CPA regarding your particular financial situation. The answer to certain tax and accounting issues is often highly dependent on the fact situation presented and your overall financial status.