Final answer:
Highly liquid, short-term investments that are easily convertible into known amounts of cash and subject to an insignificant risk of changes in value are known as cash equivalents. They include Treasury bills, marketable securities, and money market accounts.
Step-by-step explanation:
Highly liquid, short-term investments that are easily convertible into cash and are comparable to cash on hand and cash in the bank are referred to as cash equivalents. Options such as promissory notes, common shares, or accounts receivable do not fit the definition of cash equivalents. Cash equivalents are investments that have a maturity date of three months or less from the date of purchase and can be quickly converted into a known amount of cash without risking a significant change in value.
For instance, Treasury bills, government bonds, marketable securities, and money market accounts are all usually considered cash equivalents because they are liquid and not subject to material fluctuations in value. In contrast, other financial instruments like common shares or accounts receivable may face significant value changes or require more time to convert to cash, and thus, are not classified as cash equivalents.