Which of the following is considered a cash equivalent?

• A. Inventory
• B. Accounts receivable
• C. Prepaid insurance
• D. Treasury bills maturing in 60 days

Answer: (D)

Verified step by step guidance

1. Understand the concept of cash equivalents: Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value.
2. Review the characteristics of each option provided: Inventory, accounts receivable, and prepaid insurance are not considered cash equivalents because they are not liquid investments and cannot be readily converted to cash within a short period.
3. Focus on Treasury bills maturing in 60 days: Treasury bills are government-issued securities that are highly liquid and typically considered cash equivalents if they mature within three months or less.
4. Apply the definition of cash equivalents to the problem: Since Treasury bills maturing in 60 days meet the criteria of being short-term, highly liquid, and low-risk, they qualify as cash equivalents.
5. Conclude that the correct answer is Treasury bills maturing in 60 days, as they align with the definition and characteristics of cash equivalents.