Examples of cash equivalents include, but are not limited to:
- Treasury bills
- Treasury notes
- Commercial paper
- Certificates of deposit
- Money market funds
- Cash management pools
Not all qualifying short-term, highly liquid investments are treated as cash equivalents. An agency discloses its policy for determining which items are treated as cash equivalents.
When cash equivalents are purchased and sold as part of the agency's cash management process, the associated cash flows are not reported as inflows and outflows on the statement of cash flows. To do so, would inflate both cash receipts and disbursem*nts.
Investments with original maturities of three months or less
Generally, only investments with original maturities of three months or less meet this definition.
An example of an investment with original maturities of three months or less is illustrated below:
Both a three-month U.S Treasury bill (purchased 1/15/CY and matures 4/15/CY) and a three-year Treasury Note purchased three months from maturity qualify as cash equivalents.
However, a Treasury note purchased three years ago does not become a cash equivalent when it has three or less months to maturity.
Next: The Direct Method
