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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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What are cash equivalents? How are cash equivalents treated in preparing a statement of cash flows?

To determine

Explain the cash equivalents. Also, explain the manner in which the cash equivalents are treated while preparing the statement of cash flows.

Explanation

Cash Equivalents:

Cash equivalents are treated as cash in a company. The investments which are highly liquid in nature are termed as cash equivalents. These include treasury bills, commercial papers.

The cash equivalents can be easily converted in cash. Hence, firms invest their surplus cash in these short-term securities. The money market funds and commercial deposits are such highly liquid investments which are considered as cash equivalents.

Due to the highly liquid nature, the cash equivalents are considered as cash in preparing the statement of cash flows.

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