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Cash equivalents: A
Cash equivalents:
A. Are short-term, highly liquid investment assets.
B. Include 6-month certificates of deposit.
C. Include checking accounts.
D. Are recorded in petty cash.
E. Include money orders.
Expert Solution
The correct option is (A).
Short term highly liquid investment assets which can be easily converted into cash within a short period of time are known as cash equivalents.
Hence, it is a correct option.
Reasons for incorrect options:_
- Option (B): It includes 3 months or less certificate of deposit.
- Option (C): It includes bank accounts and marketable securities.
- Option (D): All the amount of petty cash would be included in the sum total of cash and cash equivalents which is then recorded as an asset in the balance sheet of a company.
- Option (E): Not all money orders is included in the cash equivalents but the orders with 3 months or less maturity period is included in the cash equivalents of a company.
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