Cash and Cash Equivalents FAQs What is the definition of cash and cash equivalents? Cash and cash equivalents refer to liquid assets that can be readily converted into known amounts of cash, such as bank deposits, certificates of deposit, treasury bills and money market funds. What are some examples of cash equivalents? Examples of cash equivalents include short-term fixed income investments with a maturity period of three months or less, currency on hand, commercial paper and government bonds. How do cash and cash equivalents affect liquidity? Cash and its equivalents are important sources of liquidity for businesses as they allow companies to quickly convert them into available funds when needed. Additionally, they help improve a company's creditworthiness as creditors view them as a sign of financial stability. When should cash and cash equivalents be reported on the balance sheet? Cash and its equivalents are typically reported under current assets on the balance sheet, since they are liquid assets that can easily be converted into cash. How do businesses use cash and cash equivalents to finance operations? Businesses often use their available cash or cash equivalents to fund daily operations, pay for short-term investments or purchase necessary supplies/equipment. Additionally, companies may use these funds to pay off debts and taxes or to provide reserves for unexpected situations. About the Author True Tamplin, BSc, CEPF® Facebook Linkedin Instagram Twitter Youtube True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists. True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics. To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.