Cash and cash equivalents

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Cash and cash equivalents are the most liquid assets found within the asset portion of a company's balance sheet. Cash equivalents are assets that are readily convertible into cash, such as money market holdings, short-term government bonds or Treasury bills, marketable securities and commercial paper. Cash equivalents are distinguished from other investments through their short-term existence; they mature within 3 months whereas short-term investments are 12 months or less, and long-term investments are any investments that mature in excess of 12 months. Another important condition a cash equivalent needs to satisfy is that the investment should have insignificant risk of change in value; thus, common stock cannot be considered a cash equivalent, but preferred stock acquired shortly before its redemption date can be. These highly liquid financial instruments that are so near their maturity and that there is no significant risk of change in value due to fluctuation of interest rates are known as cash equivalents. Although cash equivalents are not cash, they are generally presented on the statement of financial position together with cash using the title "Cash and Cash Equivalents"