Cash equivalents
Cash equivalents are short-term investments held to meet short-term cash commitments rather than for investment returns. They must be highly liquid, convertible into a known cash amount and subject to insignificant value-change risk. A maturity of three months or less from acquisition normally indicates the required short term. Classification is based on the investment’s characteristics and purpose, not its name alone.
Worked example
A low-risk deposit acquired with a two-month maturity may qualify when it is readily convertible to a known amount for cash management.
Common mistake
Three months is measured from acquisition, not merely the remaining time to maturity at year end.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | F1 | Supporting | July 2027–August 2028 |
| ACCA | FA | Direct | September 2026–June 2027 |
| ACCA | K1 | Direct | July 2027–August 2028 |
| FIA | FFA | Direct | September 2026–June 2027 |