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 must be either actual cash or nearly immediate, risk-free substitutes. Receivables are not cash — they are future promises.

Answer 1

The Correct Option is A

Cash and Cash Equivalents (CCE) include the most liquid assets that are readily available to meet immediate cash needs. These generally include:

• Cash in hand and at bank,
• Demand deposits,
• Cheques, drafts on hand,
• Short-term highly liquid investments (maturing in ≤ 3 months),
• Marketable securities like treasury bills.

Trade Receivables, though closely related to cash inflow, do not fall under the definition of cash equivalents because:

• They represent amounts owed by customers,
• Their conversion into cash depends on payment behavior,
• There is a risk of delay, default, or credit extension.

Hence, trade receivables are shown under “Current Assets” separately and are not considered part of cash and cash equivalents.