In accounting, cash and cash equivalents are the most liquid current assets as presented on an entity’s balance sheet (statement of financial position). As an item (line item), cash and cash equivalents consist of cash in hand and demand deposits (cash) and other liquid and very liquid items (cash equivalents) such as commercial paper, Treasury bills, and short-term government bonds).

Cash equivalents are very similar to cash. However, classification as a cash equivalent depends on an item being readily convertible into a certain amount of cash, and that, for assets with maturity, it has a remaining life very close to its maturity date so its face value will incur no significant changes due to changes in the broader economic environment (e.g., changes in interest rates over the remaining span of time between the time of classification and maturity date).

Cash and cash equivalents are often used by analysts (and other users of financial statements) to measure the ability of a reporting entity to pay its immediate obligations (e.g., bills) in the short term. Typically, this information is set against a company’s current liabilities.