______ are highly liquid assets that can be converted into cash shortly.a)Non-current Investmentsb)Inventoriesc)Loose Toolsd)Cash EquivalentsCorrect answer is option 'D'. Can you explain this answer?

Question

Answer

Yes because cash equivalents can be converted into cash in a very short period of time during any financial emergency or anything else

Answer

Cash equivalents can be converted into cash during financial emergencies

Answer

Cash equivalents are highly liquid assets that can be converted into cash shortly. They are short-term investments that have a maturity period of three months or less. Cash equivalents are considered as highly liquid because they can be easily converted into cash without any significant loss in value. These assets are essential for businesses to meet their short-term financial obligations and fund their day-to-day operations.

Key Points:
- Definition of cash equivalents: Cash equivalents refer to highly liquid assets that can be readily converted into cash within a short period, typically three months or less.
- Examples of cash equivalents: Cash equivalents include treasury bills, commercial paper, money market funds, and short-term government bonds.
- Characteristics of cash equivalents: Cash equivalents have a high degree of liquidity, low risk, and a short maturity period.
- Importance of cash equivalents: Cash equivalents are crucial for businesses to maintain liquidity and meet their short-term financial obligations. They also provide a buffer for unexpected expenses or emergencies.
- Comparison with other assets: Cash equivalents are more liquid than non-current investments, inventories, and loose tools. Non-current investments are long-term investments that cannot be easily converted into cash. Inventories and loose tools may take time to sell and realize cash value.
- Benefits of cash equivalents: Cash equivalents provide businesses with the flexibility to quickly access cash when needed. They can be used to cover operating expenses, repay short-term debts, or take advantage of investment opportunities.
- Management of cash equivalents: Businesses need to carefully manage their cash equivalents to ensure optimal liquidity and returns. This involves monitoring the maturity dates, interest rates, and credit ratings of the investments.
- Reporting of cash equivalents: Cash equivalents are reported on the balance sheet as a separate line item under current assets. They are typically categorized as short-term investments or marketable securities.
- Risks associated with cash equivalents: While cash equivalents are relatively low-risk investments, there is still a possibility of default or loss of value. Businesses should assess the creditworthiness and stability of the issuers before investing in cash equivalents.

In conclusion, cash equivalents are highly liquid assets that provide businesses with quick access to cash. They are important for maintaining liquidity, meeting short-term obligations, and managing financial risks. By investing in cash equivalents, businesses can ensure they have the necessary funds to operate smoothly and seize opportunities as they arise.

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Short –term highly liquid investments which are readily convertible into known amount of cash and which are subject to an insignificant risk of change in the value are called

While preparing cash flow statement cash and cash equivalents consists of assets which can be converted into cash in how many months?

Loose Tools are shown under

Prepaid expenses are shown under____________

Work in progress is shown under____________

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