Cash And Cash Equivalent, What Is It And The Difference Between The Two?

As a businessman, do you know the specific difference between cash and cash equivalents? In the basic science of accounting, both are instruments of assets managed in the company. So to understand it better, let’s read this article further.

Referred to as a short-term investment, because cash equivalents are in the form of cash that is very close to the payment deadline.

It will be easier to understand the meaning of cash and cash equivalents, if you also understand the company’s accounting cycle over a certain period of time. Usually, monthly or for a period determined by the company.

In the cash book report, it will also be known how much income receivables are, as well as the nominal debit and credit owned by the company in detail.

Getting to Know Cash and Cash Equivalents

Well, you also need to know what the definition of cash and cash equivalents is in accounting. Check out the following explanation.

  • Money stored in the cashier of the company (cash on hand).
  • Money stored in the bank (cash on bank).

Cash

To understand the meaning of cash and cash equivalents, let’s look at the meaning of cash first. So, cash is one part of the company’s assets that is most easily liquidated or used to meet company needs.

If cash and cash equivalents are short-term investments, then cash is a current asset. In fact, cash is always at the top of the balance sheet.

Then, it is followed by items of accounts receivable income of a business, and other items based on how much liquidity is for the business.

In its form, cash can be in the form of coins (coins), or paper money. In addition, cash is a number of funds that are placed in the bank so that the company can use it at any time as needed.

Calculating Cash
Calculating Cash

Examples of cash include cashier’s checks, personal checks, certified checks, bank orders, and postal money orders.

However, keep in mind that stamps are not cash. However, only a number of fees must be paid in advance (prepaid expense). Usually, companies will divide cash into 2 categories. Among others:

Cash Equivalent

Next, the meaning of cash and cash equivalents will be clearer by looking at the description of the meaning of cash and cash equivalents. In simple terms, cash equivalents are investments in a short period of time and are easily liquidated or easy to use by companies.

Included in the short-term investment, because cash and cash equivalents are in the form of cash that is very close to the payment deadline. As a result, there is almost no risk whatsoever to changes in money interest.

Examples of cash equivalents are seen from the time period, such as investments within 3 months, 2 months, or 1 month. An illustration or example of a cash equivalent is the state treasury letter.

This is because the  state treasury letter as government bonds only has a short investment period, which is less than 12 months. Other examples of cash equivalents are money market funds, and commercial paper. A number of companies are also common to make one between cash and temporary investment.

This can be seen in the balance sheet or statement of financial position. So, if there is a case like this, the company can later explain and report the amount of investment by including the numbers in brackets contained in the financial statements.

Discussing financial statements, including cash and cash equivalents, does require special accuracy and accounting expertise. However, you don’t need to spend a lot of time and energy in business bookkeeping. All you need is an accounting software which is equipped with complete accounting features and modules.

Usually there are more than 20 types of ready-to-use financial reports, smart invoicing, automatic bank reconciliation, to tax management and financial transaction recording in accounting software. Managing and creating business financial reports is faster, more practical, and as easy as a few clicks.


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