- Learn Basic Accounting in Less than 1 Hour!
- Accounting Basics
- What are Accounting Principles
- Accounting Cycle
- Accrual Accounting Basis
- Cash Basis Accounting
- Matching Principle of Accounting
- Conservatism Principle of Accounting
- Cash Accounting
- What are Accounting Policies?
- Accounting Estimates
- Mark to Market Accounting
- Cash Accounting vs Accrual Accounting
- Operating Cycle
- Fiscal Year
- Fiscal Year vs Calendar Year | Top Differences | Examples |
- Financial Reporting
- Consolidated Financial Statement
- Audited Financial Statements
- Accounting Scandals
- IFRS vs US GAAP
- IFRS vs Indian GAAP
- Debit vs Credit in Accounting
- Double Entry Accounting System
- Journal in Accounting
- Ledger in Accounting
- Journal vs Ledger
- What is Trial Balance ? | Examples | Steps | Prepare | Errors
- Reconciliation of Books | Types, Best Practices | Useful Tips
- Petty Cash | Meaning | Template | Accounting | Example
- Debit Note | Debit Notes Accounting & its Top Characteristics
- Credit Note
- Debit Note vs Credit Note | Top 7 Differences (Infographics)
- Balance Sheet
- Balance Sheet
- Accounting Equation
- Assets vs Liabilities | Top 9 Differences (with Infographics)
- Trial Balance vs Balance Sheet | Top 10 Differences You Must Know!
- Balance Sheet vs Consolidated Balance Sheet
- Bank vs Company Balance Sheet
- Commitments and Contingencies
- Management Discussion & Analysis
- Revenue Reserve vs Capital Reserve | Top 7 Differences
- Revenue Reserve
- Capital Reserve
- Capital Receipts vs Revenue Receipts | Top 8 Differences
- Capital Lease vs Operating Lease | Top Differences You Must Know!
- Debt vs Equity Financing | Advantages | Disadvantages | Example
- Internal vs External Financing | Top 7 Differences (Infographics)
- Available for Sale for securities
- Held to Maturity to securities
- Cash and Cash Equivalents | Examples, List & Top Differences
- Cash Equivalents
- Restricted Cash
- 3 Types of Inventory | Raw Material | WIP | Finished Goods
- Current Assets
- FIFO vs LIFO
- First In First Out (FIFO)
- Last in First Out (LIFO)
- Non-Current Assets
- Accounts Receivables? | Definition, Accounting Examples
- Accounts Receivables Factoring
- Allowance for Doubtful Accounts
- Accrued Revenue
- Liquid Assets
- Marketable Securities on the Balance Sheet | Top Examples
- Prepaid Expenses
- Tangible vs Intangible Assets
- Net Tangible Assets | Calculate Net Tangible Assets Per Share
- Tangible Assets
- Salvage Value
- Residual Value
- Fixed Capital vs Working Capital | Top 8 Differences (Infographics)
- Impariment of Assets
- Negative Goodwill
- Accounts Payable | Days Payable Outstanding | Formula |
- Current Liabilities | List of Current Liabilities on Balance Sheet
- Accrued Liabilities
- Notes Payable
- Revolving Credit Facilities
- Bonds Payable Accounting
- Bad Debt Reserve Allowance
- Deferred Expenses
- Unearned Revenue (Sales)
- Deferred Revenue (Income)
- Current Portion of Long-Term Debt (CPLTD) | Balance Sheet
- Long-Term Debt in Balance Sheet
- Financial Liabilities | Definition, Types, Ratios, Examples
- Long-Term Liabilities
- Accounts Receivable vs Accounts Payable
- Minority Interest
- Accounting for Convertibles
- Accounting for Derivatives
- Financial Lease vs Operating Lease
- Off balance Sheet Financing
- Finance vs Lease
- Shareholders Equity
- Shareholders Equity Statement
- Negative Shareholders Equity
- Par Value of Stock
- Share Capital
- Outstanding Shares (Definition, Formula) | Stocks Outstanding
- Additional Paid-in Capital on Balance Sheet
- Retained Earnings (Formula, Examples) | How to Calculate?
- How to Calculate Net Worth of a Company | Formula | Top Examples
- Owners Equity
- Preferred Shares
- Weighted average Shares average outstanding
- Share Buyback
- Accelerated Share Repurchase
- Restricted Stocks Units (RSUs)
- Contingent Shares
- Stock Splits Share
- Treasury Stock Shares
- Dilutive Securities
- Anti Dilutive Securities
- Stock Dividend
- Cash Dividend
- Preferred Dividends
- Ex dividend date
- Date of Record of dividends
- Cost of preferred Stock
- Common Stock vs Preferred Stock | Top 8 Differences You Must Know
- Stocks Vs Shares
- Stock Options Vs RSU
- Shareholder Equity vs Net Worth | Top 5 Differences You Must Know!
- Stock vs Option
- Stock vs Mutual Funds
- Income Statement
- Income Statement | Top Examples | Template | Format | Analysis
- Cost of Goods Sold
- Direct Costs
- Indirect Costs
- Non Recurring Items
- EBIT vs EBITDA | Top Differences | Examples | Calculation
- Depreciation – Formula | Types | Most Comprehensive Guide
- EBITDA vs Operating Income
- Straight Line Depreciation Method
- Amortization of Intangible Assets
- Unrealized Gains (Losses)
- Non Cash Expense
- Share based compensation
- Restructuring Cost
- Extraordinary Items
- Double Taxation
- Net Operating Loss (NOL)
- Tax Shield
- Sundry Expenses
- Interest vs Dividend | Top 9 Differences (with Infographics)
- EBITDA vs Net Income
- EBIT vs Net Income
- EBIT vs Operating Income
- Accounting Profit vs Economic Profit
- Income Tax vs Payroll Tax
- Tax credits vs Tax deductions
- Gross Income vs Net Income
- Profit vs Revenue
- Revenue vs Earnings
- Revenue vs Income
- Profit vs Income
- Revenue vs Sales
- Capitalization vs Expensing
- Income Statement vs Balance Sheet | Top 5 Differences You Must Know!
- Statement of Comprehensive Income | Items | Colgate Example
- FOB Destination
- Explicit Cost
- Implicit Cost
- Direct cost vs Indirect Cost
- Nopat vs Net Income
- Marginal Costing vs Absorption Costing
- Cash Flow Statement
- Cash flow from Operations | Formula, Calculations & Examples
- Cash Flow from Investing Activities (Formula & Top Examples)
- Cash Flow From Financing Activities | Formula & Calculations
- Cash Flow Analysis
- Fund Flow Statement
- Direct vs Indirect Cash Flow Methods
- Cash flow vs Net Income | Key Differences & Top Examples
- Cash Flow vs Fund Flow | Top 8 Differences (with Infographics)
- Accounting Careers
- Accounting Interview Questions
- Financial Accounting Careers
- Top Accounting Firms
- Big Four Accounting Firms
- Forensic Accounting
- Cost Accounting
- Financial Accounting
- Accounting vs Engineering
- Finance vs Accounting
- Bookkeeping vs Accounting
- Accounting vs Auditing
- Bookkeepers vs Accountants
- Accounting vs Financial Management
- Cost Accounting vs Financial Accounting
- Cost Accounting vs Management Accounting
- Financial Accounting vs Management Accounting
- Accounting Firms in Australia
- Accounting Firms in Canada
- Top Accounting Firms in US
- Accounting Books
Cash and Cash Equivalents Definition – As per the IAS 7, Cash and Cash Equivalents are defined as per below –
Cash and cash equivalents comprise cash on hand and demand deposits, together with short-term, highly liquid investments that are readily convertible to a known amount of cash, and that are subject to an insignificant risk of changes in value.
source – IAS
This complete article on Cash and Cash Equivalents is subdivided as per below –
- What is Cash and Cash Equivalents?
- List of Cash and Cash Equivalents?
- How is it different from Short Term Investments and Long Term Investments?
- Why should a firm hold cash?
- Colgate’s Cash and Cash Equivalents Example
What is Cash and Cash Equivalents?
- All companies need cash to run their business. They either need to pay to pay salaries and bills and also to run their day-to-day operations.
- When a company is not using its cash balance it may invest its cash in very low risk liquid (easily sold) securities so it can generate interest income. Therefore very liquid securities are sometimes called cash equivalents.
List of Cash and Cash Equivalents
As per the definition provided by IAS, following is the list of cash and Cash Equivalents examples –
- Cash equivalents are securities (e.g. US Treasury bills) that have term of less than or equal to 90 days.
- Cash could also include an amount required to be held for deposit to satisfy the terms of a lending agreement.
- There should be an insignificant amount of risk of change in value.
- Stocks (Equity Investments) are not included here as the stock prices fluctuate daily and can lead to significant amount of risk
- Preferred stocks can be included within three months of the redemption date
How Cash Equivalents differ from Investments?
- Cash Equivalents can be different from Short-Term Investments in tenure. Cash Equivalents have a maturity of less than 3 months, whereas short-term investments mature within 12 months.
- Likewise, long-term investments have a maturity of greater than 12 months and are not classified as Cash Equivalents.
WallStreetMojo Free Accounting Course
You will Learn Basics of Accounting in Just 1 Hour, Guaranteed!
* Please provide your correct email id. Login details for this Free course will be emailed to you
Why Firms hold Cash and Cash Equivalents?
There are different reasons why a firm may want to keep reasonable levels of CCE.
#1 – Overall Operating Strategy
Most companies try to keep small amount of cash as compared to the overall turnover. It is important that the company has enough cash to run their day to day operations without running to the bank every now and then. Let us look at Procter and Gamble cash and cash equivalents example –
source: Yahoo Finance
- PG Cash = $8.558 billion
- PG Total Assets = $144.266 billions
- Cash as % of Total Assets = 8.558 / 144.266 ~ 6%
- PG Total Sales in 2014 = $83.062
- Cash as % of Total Sales = 8.558 / 83.062 ~ 10.3%
#2 – Speculative Acquisition Strategy
Another thought could be to pile up cash for a speculative or planned acquisition. If we note Apple’s cash and cash equivalents example, we will get some insights on the same.
source: Yahoo Finance
- Apple Inc Cash = $13.844 billion
- Apple Inc Total Assets = $231.839 billions
- Cash as % of Total Assets = 13.844 / 231.839 ~ 6%
- Apple Inc Total Sales in 2014 = $182.795
- Cash as % of Total Sales = 13.844 / 182.795 ~ 7.5%
Though we see that there is nothing too exciting about the Cash here, but if we closely look at all the Investments, we note that Apple Inc has a huge pile $13.844 bn (cash & cash equivalent) + $11.233 bn (short term investments) + $130.162 bn (long term investments) = $155.2 bn. Is this for a suitable acquisition target?
#3 – No Good Reason
Some companies may have a high cash for no good reasons. Maybe the management has not yet figured out the best way to deploy cash. In this case, one of the strategies could be to provide a return to the shareholders by buying back shares.
In another case, where there is a huge pile of up cash for capital-intensive firms would imply an investment in a big project or a machinery.
Colgate’s Cash and Cash Equivalents Example
You can download Colgate’s 10K report from here
Let us take an cash and cash equivalents example of Colgate. Here we will answer a couple of quick questions on Colgate’s Cash to master this concept further.
Where is Colgate’s CCE found?
Colgate’s CCE is found in the balance sheet.
How much CCE Colgate has in 2013 and 2014?
Colgate has $0.962 bn and $1.089 billion of CCE in 2013 and 2014, respectively.
Is this a large or small amount compared with total sales?
- Colgate’s Cash (2014) = $1.089 bn
- Colgate’s Total Sales in 2014 = $17.277 bn
- Cash % of Total Sales (2014) = 1.089/17.277 = 6.3%
- Colgate’s Cash (2013) = $ 0.962 billion
- Colgate’s Total Sales in 2013 = $ 17.420
- Cash as % of Total Sales (2013) = 0.962 / 17.420 = 5.5%
If we compare this with the PG (Proctor and Gamble) discussed above, it is in line. Looks like 6% is normal (neither small nor large)
Do you think Colgate is planning to use this cash for an acquisition?
Cash for Colgate is around (which is not very high) ~6%. Also, if we look at the short term investments and long term investments of Colgate, they are pretty much nonexistent. Most likely we can deduct from above that Colgate is not looking to puruse any major acquisition strategy. Also, note that cash and cash equivalents improves the Current Ratio
How does Colgate define the Cash and Cash Equivalents in Accounting Policies?
Colgate defines Cash as per below.
This has been a guide to Cash and Cash Equivalents, its definition and basics. Here we discuss the list of Cash and Cash Equivalents, examples of Colgate, P&G and Apple and also the top 3 reasons why firms hold cash. If you learned something new or enjoyed the post, please leave a comment below. Let me know what you think. Many thanks and take care. Happy Learning!