Question

Which of the following item is not included in cash and cash equivalents ?

• A. Trade Receivables
• B. Demand deposits with bank
• C. Short-term marketable securities
• D. Cheques in hand

Hint:

Cash and Cash Equivalents generally include: Cash on Hand, Demand Deposits (Bank Balance), Cheques/Drafts in Hand, and short-term (\leq3 months maturity from acquisition), highly liquid investments like Treasury Bills, Commercial Paper, Money Market Funds meeting the criteria. Items like Debtors, Inventory, longer-term investments are excluded.

Answer 1

The Correct Option is A

Step 1: Define Cash and Cash Equivalents Components:
Cash includes cash on hand and demand deposits with banks.
Cash Equivalents are short-term, highly liquid investments readily convertible to cash within 3 months, subject to insignificant value change risk.
Step 2: Evaluate Each Option:
(A) Trade Receivables (Debtors/Bills Receivable): These represent amounts due from customers. While they are current assets expected to convert to cash, they are not 'readily convertible into known amounts' on demand and are subject to credit risk. They are not cash or cash equivalents.
(B) Demand deposits with bank: These are funds held in bank accounts accessible on demand (like current accounts) and are part of 'Cash'.
(C) Short-term marketable securities: If these meet the criteria (highly liquid, readily convertible within 3 months, insignificant risk), they qualify as 'Cash Equivalents'. The term often implies they meet these conditions.
(D) Cheques in hand: Cheques received but not yet deposited are treated as 'Cash on Hand' and are part of 'Cash'.
Conclusion:
Trade Receivables do not meet the definition of cash or cash equivalents. Demand deposits and cheques in hand are considered cash, and qualifying short-term marketable securities are cash equivalents.