Cash and Cash Equivalents

By Ethan Yan | April 26, 2026

What is CCE?

  1. Cash isn’t just the physical currency, but it also includes demand deposits. These are accounts where you can withdraw money from a bank or financial institution without fees or timing constraints. It includes checking accounts or unused cash in a brokerage firm.

  2. Cash Equivalents are short term and highly liquid assets. These assets have to be readily available to turn into cash, while also having a short initial maturity date so that interest rate changes aren’t as significant. Their initial maturity date should be three months or less, which this Chapter from Deloitte Accounting Research Tool (DART) explains why:

    “Both a three-month U.S. Treasury bill and a three-year U.S. Treasury note purchased three months from maturity qualify as cash equivalents. A Treasury note purchased three years ago does not become a cash equivalent when its remaining maturity is three months.” (Deloitte Chapter 4.1)

Cash and Cash Equivalents (CCE) are two types of assets that share a similar purpose: highly liquid assets that are readily available for financial emergencies, investing opportunities, or casual use. Although they share a similar purpose, they encompass different accounts and investments.

It doesn’t matter if you’re a large company or an individual investor, having readily available cash is healthy and important. Keep in mind that when you invest in any assets, they are exposed to risk, making them gain or lose value. This risk makes it important for businesses and people to keep a portion of their portfolio in CCE, as its only risk is periodic inflation lowering its purchasing power.

We’ve discussed what Cash Equivalents are, but we should know what investments are really included in it. Here are five main investments included in Cash Equivalents:

Types of Cash Equivalents

  • Investing in CDs means you let the bank keep a certain amount of your money for a specified amount of time. In exchange, the bank agrees to pay you back a guaranteed rate of interest when the CD matures.

  • During this time, you shouldn’t withdraw money until the CD matures, as you will owe a penalty if you do. It is federally insured so they’re safe investments.

  • If the CD doesn’t allow any withdrawals, they are considered as unbreakable CDs, which aren’t considered Cash Equivalents since they cannot be liquidated as easily.

Certificate of Deposit (CDs)

  • Very popular conservative investment, makes it safe since it’s backed by the government and extremely liquid due to demand. However, they are still vulnerable to inflation and changing interest rates.

  • Not to be confused with Treasury Bonds, T-Bills are purchased with terms ranging from a day to a year.

  • Selling T-Bills before its maturity may result in more or less than principal depending on the market conditions. There is still some risk in this security, albeit very low.

U.S. Treasury Bills (T-Bills)

  • Besides T-Bills, other government entities offer short-term bonds. They can be considered Cash Equivalents if they qualify, but it’s ultimately up to the investor to research if the investment is worth it and qualifies as a cash equivalent.

other government bonds

Money market funds (MMfs)

  • I talked about it before in my MMF blog, but they’re low risk and affordable investments. However they aren’t federally insured, so it’s possible to lose money if the market is volatile.

  • Issued by a corporation, as it is a short-term debt issued by the corporation itself to meet their immediate liabilities.

  • They vary in maturity dates and yields, so similar to other government bonds, they can be cash equivalents.

commercial paper

  • MMAs are somewhat like investments, as they have account minimums, offer interest, and are subjected to insignificant value changes.

  • They aren’t considered cash because they have limited transactions, aren’t instantaneous like a checking account, and by definition of the Generally Accepted Accounting Principles (GAAP) they fall under cash equivalents.

  • HYSA also can have account minimums, offer interest, and aren’t subjected to major value changes. Similar to MMAs, HYSAs fall under cash equivalents due to the GAAP.

  • Both are in the gray area, as many online banks are weening out of account minimums and transfer limits/delays. However, by the GAAP, they are cash equivalents.

HYSA and MMA

Asset Allocation

I’ve mentioned the importance of Asset Allocation in my previous blogs. However, to keep it short, most investors reflect a certain amount of cash (2% to 10%) of their total portfolio in case of emergencies or investment opportunities. You won’t always be ready during a market rise, so having this cash is great for timing. However, some may not enjoy the fact that their money just sitting around doing nothing. Understanding CCE is perfect, as you can always invest a portion of your cash into short-term assets, making them cash equivalents.

CCE reflects the health of a business. When a company seems to be profitable on paper, it may not have enough cash on hand for immediate financial requirements. If they cannot pay these expenses, they are forced to sell long-term assets at a loss or to just struggle.

CCE also affects their access to capital. Lenders require companies to maintain a certain amount of CCE in order to obtain loans. The higher the CCE is, the better the loan terms are, as the company shows it can endure during setbacks.

Companies will have their CCE public, as it is by law to do so when they issue out their balance sheets. As an investor, it gives you a good idea whether or not the company is doing well and may be worth investing in to.

Business Applications

SOURCES

Liberto, D. July 9, 2025. Cash and Cash Equivalents (CCE): Definition, Types, and Examples. https://www.investopedia.com/terms/c/cashandcashequivalents.asp

Smith, A. December 11, 2024. Cash and Cash Equivalents, Explained. SoFi. https://www.sofi.com/learn/content/cash-and-cash-equivalents/

(Retrieved April 23, 2026). Definition of Cash and Cash Equivalents. Deloitte Accounting Research Tool. https://dart.deloitte.com/USDART/home/codification/presentation/asc230-10/roadmap-statement-cash-flow/chapter-4-cash-cash-equivalents/4-1-definition-cash-cash-equivalents

Previous

Fees, Errors, and Returns