Question

Cash equivalents are highly liquid investments that are bothA : money market funds and have a maturity date of one year or less. B : notes receivable and will be collected within one year. C : readily convertible and with a market value that is sensitive to changes in interest rates. D : readily convertible and very close to their maturity dates.

Answer 1

D : readily convertible and very close to their maturity dates.

Step-by-step explanation:

Cash equivalents are current liquid assets and comprise cash in hand, cash at the bank, and short term investment whose maturity is in three months or less. A company's total value of cash and cash equivalents is recorded at the top line of the balance sheet as a current asset. They are the most liquid asset of a company.

For an asset to be classified as a cash equivalent, it must have the ability to convert to cash easily. Its value should be relatively stable and be determined with ease. Cash equivalents indicate the financial strengths of a business and its ability to offset the current liabilities.