ACCT 5111
Tutorial 4
Comments on Cash and Cash Equivalents
Current Assets
Current
Assets
Cash
Prepaid
Expenses
Short-term
Securities
Inventories
Receivables
Current assets include cash and those assets that are expected to be
converted to cash or used up within one year.
Cash
Checking
accounts
Coins and paper
money
Cash
Petty cash
funds
Money orders
Undeposited
receipts
Cash Equivalents
Commercial paper
U.S. Treasury
securities
Cash
Equivalents
include. . .
Bank certificates
of deposit
Money market
mutual funds
Cash Management
Invest excess cash with
minimal risk.
Assure the availability of
adequate amounts of cash.
Avoid unnecessarily large
amounts of idle cash.
Prevent theft and fraud.
8
Do Firms Invest in Financial Assets?
• Statement of Financial Accounting Standards (SFAS) No. 157 in
2009
▫ Disclose the fair value of major asset class on balance sheets
• Duchin, Gilbert, Harford and Hrdlicka (DGHH, 2016, JF)
▫ 40% of “risk-free” cash in corporate debt, equity, and mortgagebased securities
▫ Data period: 2009 to 2012
▫ Data sample: S&P 500 big firms
Risky Cash holding of Apple