Loading the player...

What are 'Cash And Cash Equivalents - CCE'

Cash and cash equivalents refer to the 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. These include bank accounts, marketable securities, commercial paper, Treasury bills and short-term government bonds with a maturity date of three months or less. Marketable securities and money market holdings are considered cash equivalents because they are liquid and not subject to material fluctuations in value.

BREAKING DOWN '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 the most-liquid assets. All cash and cash equivalents must be current assets.

Cash Part of Cash and Cash Equivalents

Cash is money in the form of currency. This includes all bills, coins and currency notes. A demand deposit is a type of account from which funds may be withdrawn at any time without having to notify the institution.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 saving accounts. All currency balances as of the date of the financial statements of deposit accounts are included in cash totals.

Foreign Currency

Companies holding more than one currency experience currency exchange risk. Currency from foreign countries must be translated to the reporting currency for reporting purposes. The conversion should 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."

What Is Defined as a Cash Equivalent?

Cash equivalents are investments that can readily be converted into cash. The investment must be short term, usually with a maximum investment duration of three months or less. If an investment matures in more than three months, it should be classified in the account named "other 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 price fluctuations. The value of the cash equivalents must not be expected to change significantly before redemption or maturity.

Certificates of deposit may be considered a cash equivalent depending on the maturity date. Preferred shares of equity may be considered a cash equivalent if they are purchased shortly before the redemption date and not expected to experience material fluctuation in value.

RELATED TERMS
  1. Cash Ratio

    The cash ratio is the ratio of a company's total cash and cash ...
  2. Cash Flow

    Cash flow is the net amount of cash and cash-equivalents being ...
  3. Net Cash

    Net cash is the result of a company's total cash minus total ...
  4. Cash Flow Statement

    A cash flow statement is a financial statement that provides ...
  5. Cash Flow From Investing Activities

    Cash flow from investing activities reports the total change ...
  6. Cash Trading

    Cash trading is a method of buying or selling securities by providing ...
Related Articles
  1. Investing

    Cheap Stocks or Value Traps?

    The value of stocks that trade at less than cash per share can be deceiving.
  2. Investing

    Operating Cash Flow: Better Than Net Income?

    Differences between accrual accounting and cash flows show why net income is easier to manipulate.
  3. Investing

    Understanding financial liquidity

    Financial liquidity comes into play for companies, your personal finances, investing, and the financial markets. However, assets and investments have varying liquidity levels.
  4. Investing

    What Is Cash Flow From Investing Activities?

    Cash flow from investing is listed on a company's cash flow statement and includes any inflows or outflows of cash from a company's long-term investments. 
  5. Investing

    Cash Flow From Operating Activities

    Cash flow from operating activities is a section of the Statement of Cash Flows that is included in a company’s financial statements after the balance sheet and income statements.
  6. Tech

    Cash Flow Is King: How to Keep it Running

    Why is cash flow so important, and what steps can a business take to improve it?
  7. Investing

    Is Your Fear of Investing Costing You Money?

    Don't let too much cash in your accounts hurt your bottom line. Invest it according to your needs.
RELATED FAQS
  1. Where Do Companies Keep Their Cash?

    Cash and cash equivalents are the first items on a company's balance sheet, but they are not same. Read Answer >>
  2. How do the balance sheet and cash flow statement differ?

    The balance sheet and cash flow statement are financial statements that companies issue to report their financial performance ... Read Answer >>
  3. How are cash flow and revenue different?

    Both revenue and cash flow are used to help investors and analysts evaluate the financial health of a company. However, there ... Read Answer >>
  4. What investments are considered liquid assets?

    In this article, you'll learn what liquid assets are, what assets are considered liquid, and what investments are considered ... Read Answer >>
  5. What is an asset?

    An asset is anything of value that can be converted into cash. For companies, an asset might generate revenue, or the company ... Read Answer >>
Trading Center