Definition
Cash and cash equivalents are assets that can be quickly converted into cash or are already in cash form. These include cash in hand, bank balance, and short-term investments that can be easily used for payments.
Example
For example, a company may have Rupee 1 lakh in cash, Rupee 2 lakh in a bank account, and Rupee 50,000 in short-term deposits. All of these are considered cash and cash equivalents because they can be used immediately or converted into cash quickly.
Caution
Although these assets are very liquid and safe, they usually earn lower returns compared to other investments. Keeping too much money in cash equivalents may reduce overall earning potential.