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Short-term, low-risk investments, such as US Treasury bills or short-term certificates of deposit (CDs), are considered cash equivalents.
The Financial Accounting Standards Board (FASB) defines cash equivalents as highly liquid securities with maturities of less than three months. Liquid securities typically are those that can be sold easily with little or no loss of value.
(1) In finance, assets easily converted to cash. Lenders like to see large percentages of assets held in cash and cash equivalents rather than tied up in real estate or stock in small corporations.(2) In appraisal,the conversion of a sales price with favorable or unfavorable financing terms into the equivalent price if the consideration had been all cash. A seller might demand an above-market price for a property but be willing to hold the financing at below-market rates, for example.Such a transaction would require analysis for the cash equivalent sales price.