Monday, April 26, 2010

On a statement of cash flows, what do the cash and cash equivalents mean?

Also, why do you add the change in cash equivalents to the cash and cash equivalents at the beginning of the year. How do these relate to investing, financing and operating activities?

On a statement of cash flows, what do the cash and cash equivalents mean?
cash equivalent are liquid assets, this is done to determine true cash flow %26amp; how much change occured due to financing activity %26amp; how much is due to operations.


e.g. 10,000 opening cash ,


+ 5,000 cash from operation


- 12,000 financing ( loans etc given/invested)


= 3000 closing cash/equivalent
Reply:Cash and Cash Equivalents - CCE


An item on the balance sheet that reports the value of a company's assets that are cash or can be converted into cash immediately.





Cash is defined as all currency and coins and all demand deposits maintained at banking institutions.





Cash equivalents are defined as highly liquid investments that are convertible to a known amount of cash, have an original maturity of less than three months at the time of purchase and have insignificant risk of change in fair market value due to shifts in the interest rate.





Examples of cash equivalents would be cash in money market and cash invested in the Investment management Boards (IMB) polled investments.

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