Accountancy Part BCash Flow Statement

Cash equivalents refers to: (A) Demand deposits with Bank (B) Bills r…

Cash equivalents refers to:

(A) Demand deposits with Bank
(B) Bills receivables
(C) Treasury bill
(D) Commercial Paper
(E) Marketable Securities

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → (A), (C), (D) and (E) only

A cash flow statement treats cash and cash equivalents together. Cash includes demand deposits with banks; cash equivalents are short-term, highly liquid investments readily convertible into a known amount of cash:

(A) Demand deposits with Bank — True. They can be withdrawn at any time and are part of cash and cash equivalents.
(B) Bills receivables — False. They are trade receivables from customers, not investments of surplus cash.
(C) Treasury bill — True. A short-term government security with almost no risk of change in value.
(D) Commercial Paper — True. A short-term money-market instrument readily converted into cash.
(E) Marketable Securities — True. Short-term marketable securities are treated as cash equivalents.

NCERT (2026-27 edition):
Cash and Cash Equivalents – “… As per AS-3, ‘Cash’ comprises cash in hand and demand deposits with banks, and ‘Cash equivalents’ means short-term highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. An investment normally qualifies as cash equivalents only when it has a short maturity, of say, three months or less from the date of acquisition.”

NCERT (2026-27 edition):
Cash and Cash Equivalents – “… Similarly, short-term marketable securities which can be readily converted into cash are treated as cash equivalents and is liquidable immediately without considerable change in value.”