Cash equivalents: A. Are short-term, highly liquid investment assets.

Cash equivalents:

A. Are short-term, highly liquid investment assets.

B. Include 6-month certificates of deposit.

C. Include checking accounts.

D. Are recorded in petty cash.

E. Include money orders.

Answer: A. Are short-term, highly liquid investment assets.

Cash equivalents are defined as securities that are easily convertible into cash within the next 90 days and whose cash value can easily be determined.

This includes other assets that are highly liquid and which can be exchanged in the market for cash with minimal loss in their value. These assets are easily recognizable due to their relatively short economic life which mostly is less than three months from the date of purchase. Some of the examples of money market instruments are treasury bills, commercial paper and money market funds. Cash equivalents are mostly regarded as very safe investments and are often used by firms to deposit their most liquid surplus. They are recorded in the balance sheet together with cash since they are used in the same way and have the same role of being immediately accessible in operating business activity. The characteristic which is most significant where cash equivalents are concerned is the high liquidity, low risk and even a short maturity.