What is defined as cash and cash equivalents?
Cash is cash and it’s easily understood – it’s the funds you have available to be used right away, whether they’re actual cash amounts you have physically available or bank accounts, which in this sense would classify as ‘equivalents’.
When cash and bank accounts are the easiest to define, it’s the deposits and other funds that are far more trickier. However, there’s one basic rule to help and define whether a certain balance classifies as cash or some other form of asset. Ask yourself how easily you can use the position. Can you take funds out say within months notice? The general term is 3 months, however I have seen longer periods being defined as still ‘cash equivalent’. And as for investments into funds – if they’re made into marketable securities that invest into similar assets as cash, chances are those positions are also defined as cash.
Another topic that always comes in mind when talking about cash is it’s physical security. I don’t only mean physical security of cash at your premises, but also on your bank accounts. Cash is the most liquid asset of a company and thuse most prone for theft – ensure that you’ve got proper measures in place for mitigating such risks.