Скачать или смотреть WHAT IS CASH AND CASH EQUIVALENTS? (EASIEST EXPLANATION) Straight to the Point

In around two minutes you will know what is Cash and Cash Equivalents. You will get both professional definition and easy explanation. No intro, no outro, straight to the point.

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Cash and Cash Equivalents is an economic resource with the highest liquidity. Cash and Cash Equivalents can be usually found under Current Assets section of a Balance Sheet.

And if you are not sure what Assets, Current Assets, or a Balance Sheet means, feel free to watch my previous videos.

Like mentioned previously, cash and cash equivalents have the highest liquidity. Liquidity in this case means how easy it is to convert such assets into cash. And since we are talking about cash itself, there are no conversions required.

But cash and cash equivalents can be different types of assets.

The first one is cash. Which is basically exactly how we imagine it. Whether it is a bill, a coin, or simply money in your bank account and checks.

Using cash is the fastest and the easiest way of accessing goods and services. Cash is acceptable almost everywhere. But if you are paying in another currency, you’d have to exchange your money first.

And the second part of the equation are the cash equivalents. Cash equivalents are usually those securities, that can be exchanged for cash quickly and used for payments.

Unlike traditional securities, such as stocks and bonds, cash equivalents are the safest types of securities. Such as, but not limited to, government treasury bills and bank’s certificates of deposit.

Such, so called, investments can be easily sold and converted into cash. They also provide you with a very little return. Which can sometimes just barely match the inflation rates. But one of the requirements of cash equivalents is to be as safe as possible. Therefore, there is no need of chasing high returns.

Usually, for reporting purposes, cash and cash equivalents are treated as the same account on the balance sheet. Which basically means that you simply need to add your cash reserves and cash equivalents together to receive this number.

Having too much cash on hand is as bad as having too little. If you don’t have enough cash, you might struggle making your most urgent debt payments.

But if you are holding too much cash, you are missing an opportunity to invest this excessive amount and generate more revenue.

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