Are Short-Term Investments Current Assets? How These Are Treated In Accounting?
Are Short-Term Investments Current Assets
Short-term investment is one of the common examples of liquid assets and these investments are treated as current assets in the balance sheet because they are expected to convert into cash within a short period typically one year or less than one year.
These investments can be exchanged with cash or other economic resources that can be used in the business’s ongoing operations or provide cash benefits within a short period.
These investments are the temporary investments that companies hold for generating short-term benefits over excess cash.
The followings are the widely used examples of short-term investment:
- Treasury Bills
- Certificates Of Deposit
- Mutual Funds
- Commercial Paper
- Short Term Bonds
- Equity Instruments, etc.
Why Short-Term Investments Are Important
Short-term investments are very useful in urgent situations such as paying short-term liabilities or expenses. The followings are the major reasons why short-term investments are important.
- These investments help a company to manage its liquidity
- Idle cash can easily be used and improve the cash flow
- These help to cover the unexpected and unforeseen expenses of the company
- These investments help a company in minimizing risk through asset allocation
- These investments provide opportunities for long-term investments
- Short-term investments play a vital role in marinating the working capital, etc.
FAQs
Are Short-Term Investments Current Assets?
Yes, these investments are treated as current assets in the balance sheet.
Why are short-term investments treated as current assets in the balance sheet?
Because these investments are expected to convert into cash or provide cash benefits within a short period typically one year or less. So they are recorded as current assets in the company’s balance sheet.
What is the meaning of short-term investment in accounting?
Short-term investments are those investments that provide cash benefits within a year or less.
Where short term investments are purchased?
These investments can be purchased in the public stock or bonds market.
What are two examples of short-term investment?
Treasury bills and certificates of deposit are the most common examples of short-term investments.