Which of the following is a cash and cash equivalent while preparing a cash flow statement of the company?

A) Credit sales
B) Cash received from debtors
C) Bank balance
D) Sale of building
E) Issue of share capital
F) Short-term deposits in bank
G) Dividend paid
H) Interest paid on long-term debentures
I) Investment in marketable securities
J) Income tax paid

Choose the correct answer from the options given below.

CFI

The correct answer is option 2- CFI.

A) Credit sales- Not included in cash flow statement
B) Cash received from debtors- Operating activity
C) Bank balance- Cash & Cash equivalents
D) Sale of building- Investing activity
E) Issue of share capital- Financing activity
F) Short-term deposits in bank- Cash & Cash equivalents
G) Dividend paid- Financing activity
H) Interest paid on long-term debentures- Financing activity
I) Investment in marketable securities- Cash & Cash equivalents
J) Income tax paid- Operating activity

The cash flow statement shows inflows and outflows of cash and cash equivalents from various activities of an enterprise during a particular period. 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. Investments in shares are excluded from cash equivalents unless they are in substantial cash equivalents. For example, preference shares of a company acquired shortly before their specific redemption date, provided there is only insignificant risk of failure of the company to repay the amount at maturity. 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.