Question

Which of the following are required characteristics of cash equivalents?

1) Highly liquid
2) Readily convertible to known amounts of cash
3) Subject to an insignificant risk of changes in value
4) All of the above

Answer 1

Cash equivalents must be highly liquid, readily convertible to known amounts of cash, and subject to an insignificant risk of changes in value.

Step-by-step explanation:

The required characteristics of cash equivalents are:

1. Highly liquid: Cash equivalents should be easily and quickly converted into cash without any significant loss in value.
2. Readily convertible to known amounts of cash: Cash equivalents should have a fixed value that can be easily determined and converted into a specific amount of cash.
3. Subject to an insignificant risk of changes in value: Cash equivalents should have minimal risk of changes in their market value, ensuring their stability.

Therefore, the correct answer is 4) All of the above.