Cash Equivalents

Cash equivalents are short -term, highly liquid investments that can be readily converted to a specific amount of cash. Treasury Bills, commercial paper, and money market funds are very cash accessible for a company in case immediate needs come up. Treasury bills are short term usually a couple of days up to fifty-two weeks. They are sold at discounts and then paid back at face value or you are given the interest owed after the investment expires. Commercial paper is a money market security issued by large banks and corporations to get money to take care of short-term debt obligations. Money market funds are low risk security funds that are short term. The importance of cash in a business is explained in a process. You need cash to buy inventory, then sell inventory, which is accounts receivable, for cash, then which you can buy more inventory to restock. Restricted cash can sometimes be mistaken as cash equivalents. Restricted cash is cash not used for general purposes and is saved for special purposes such as insurance claims. Bottom line is that in order for a business to run it needs cash. Cash equivalents are the safest investments for a business for fast liquid.

Current liabilities are often understood as all liabilities of the business that are to be settled in cash within the fiscal year or the operating cycle, whichever is longer. Accounts payable and short/current long-term debt makes up the majority of current liabilities. Some examples include wages payable, bank loans payable, interest payable, and taxes payable. Target reported $10,070,000,000.00 for the total current liabilities at the end of its most recent annual reporting period.

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