Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and so near their maturity that there is little risk of changes in value due to changes in interest rates. To be reported as a cash equivalent, the item must be immediately available for payment of current obligations.
| Cash Equivalents – US GAAP vs. IFRS | |
| US GAAP | IFRS |
| Includes short-term investments, often including bank overdrafts. | Includes short-term investments, but excludes bank overdrafts. |
A short-term investment is an investment with an original holding period of greater than three months that is convertible back into cash within the following accounting period. Whereas short-term investments may include any type of asset, marketable securities are short-term investments in the form of negotiable securities that are expected to be converted back into cash within the following period.
Short-term investments are measured at fair value or amortized cost. Marketable securities are initially measured at cost – the amount paid by the buyer to the seller and measured either at the nominal value of the cash or fair value of the other consideration exchanged – and subsequently remeasured to fair value each reporting period.
The account cash and cash equivalents (CCE) may be found on balance sheets and cash flow statements, where the value of all cash and cash equivalents items are combined and reported together.