what are cash and cash equivalents cce 
cash and cash equivalents are a line item on the balance sheet that reports the value of a company s assets that are cash or can be converted into cash immediately cash equivalents include bank accounts and some types of marketable securities such as debt securities with maturities of less than 90 days however cash equivalents often do not include equity or stock holdings because they can fluctuate in value investopedia julie bangunderstanding cash and cash equivalents cce cash and cash equivalents are a group of assets owned by a company for simplicity the total value of cash on hand includes items with a similar nature to cash if a company has cash or cash equivalents the aggregate of these assets is always shown on the top line of the balance sheet this is because cash and cash equivalents are current assets meaning they re the most liquid of short term assets companies with a healthy amount of cash and cash equivalents can reflect positively in their ability to meet their short term debt obligations types of cash and cash equivalentscash and cash equivalents help companies with their working capital needs since these liquid assets are used to pay off current liabilities which are short term debts and bills cash is money in the form of currency which includes all bills coins and currency notes it also includes money orders cashier s checks certified checks and demand deposit accounts a demand deposit is a type of account from which funds may be withdrawn at any time without having to notify the institution examples of demand deposit accounts include checking accounts and savings accounts all demand account balances as of the date of the financial statements are included in cash totals companies holding more than one currency can experience currency exchange risk currency from foreign countries must be translated to the reporting currency for financial reporting purposes the conversion should normally provide results comparable to those that would have occurred if the business had completed operations using only one currency translation losses from the devaluation of foreign currency are not reported with cash and cash equivalents these losses are reported in the financial reporting account called accumulated other comprehensive income 1cash equivalents are investments that can readily be converted into cash the investment must be short term usually with a maximum investment duration of 90 days if an investment matures in more than 90 days it should be classified in the section named investments cash equivalents should be highly liquid and easily sold on the market the buyers of these investments should be easily accessible the dollar amounts of cash equivalents must be known therefore all cash equivalents must have a known market price and should not be subject to meaningful price fluctuations the value of the cash equivalents must not be expected to change significantly before redemption or maturity examples of cash equivalents include a company can have too much cash or cash equivalents on hand though it may be inefficient to sit on these resources instead of deploying them for company growth or rewarding investors with dividends exclusion from cash and cash equivalentsthere are some exceptions to short term assets and current assets being classified as cash and cash equivalents exceptions can exist for short term debt instruments such as treasury bills if they re being used as collateral for an outstanding loan or line of credit restricted t bills must be reported separately in other words there can be no restrictions on converting any of the securities listed as cash and cash equivalents inventory that a company has in stock is not considered a cash equivalent because it might not be readily converted to cash also the value of inventory is not guaranteed meaning there s no certainty in the amount that ll be received for liquidating the inventory a grey area of cash equivalents relates to certificate of deposits for terms longer than 3 months that can not be broken oftentimes financial institutions will allow the cd holder to break their financial product in exchange for a forfeiture of interest i e the last six months of interest is foregone if a financial institution does not allow this option the cd should not be treated as a cash equivalent this is especially true for longer term products such as five year cds that must be held to maturity a company may report prepaid assets as part of its current asset section these prepaid assets may be refundable however because there is risk that a refund cannot be processed timely or there may be only a partial return of funds prepaid assets are not considered cash equivalents because of the uncertainty regarding client creditworthiness outstanding account receivable balances are not cash equivalents even if the invoice is due or shortly to be due even if a debt is ready for collection there is no guarantee the client will be able to pay in addition the company may not have preferential positioning in bankruptcy or liquidation proceedings therefore money owed from clients is not the same as cash equivalents cash vs cash equivalentsalthough the balance sheet account groups cash and cash equivalents together there are a few notable differences between the two types of accounts cash is obviously direct ownership of money while cash equivalents represent ownership of a financial instrument that often ties to a claim to cash cash and cash equivalents may have different insurance coverage savings and checking accounts cash and money market accounts cash equivalents are often insured up to 250 000 by the fdic 5 however money market mutual funds are not fdic insured but may be sipc insured debt instruments whether issued by a government or corporation is tied to the health of that entity with no guarantee the entity may survive the term of the cash equivalent however in bankruptcy proceedings bondholders are at least well positioned to be paid back cash and cash equivalents also generally earn different yields as there are different risks associated with each though risk for both is fairly low cash equivalents may receive favorable yields in addition some money market funds may be tax exempt or be held in tax favorable accounts meanwhile cash often receives lower rates of interest in deposit accounts because cryptocurrencies are not legal tender and not backed by governments or legal entities u s gaap does not treat cryptocurrency as cash foreign currency or cash equivalents 6purpose of cash and cash equivalentscompanies carry cash and cash equivalents for a variety of business reasons a company may want to have cash and cash equivalents on hand to real world example of cash and cash equivalentsin its third quarter 2024 condensed consolidated balance sheet apple inc aapl reported 32 7 billion of cash and cash equivalents as of march 30 2024 on sept 30 2023 apple inc had reported 30 0 billion of cash and cash equivalents 7in note 4 to its financial statements apple provides a substantial amount of information regarding what comprises this cash and cash equivalent balance apple classifies its broad assortment of financial instruments as cash level 1 instruments or level 2 instruments based on how the item is valued 8in the table above the fifth column represents the value apple assigned as cash and cash equivalents the company owns cash money market funds u s treasury securities u s agency securities certificates of deposit and time deposits commercial paper corporate debt securities and other asset classes as well 8