Cash Equivalents are short term investments. Their two main primary characteristic are: 1) easily convertible to cash within a short time frame (usually three months) 2) low risk. They are sometimes referred to as liquid debt, since they can be converted to cash quicker than most debt. In addition, having a lower risk allows for a quicker conversion to cash.
Examples of cash equivalent assets:
- Treasury bills
- Money market funds.
They can be grouped with Cash on the balance sheet; hence the term Cash & Cash Equivalents.