Cash equivalents are short-term, highly liquid investments. Generally, the holder can readily convert these financial instruments into cash, and the instrument is so close to its maturity date that it presents an insignificant risk of change in value.
For financial reporting purposes under U.S. Generally Accepted Accounting Principles (GAAP), investments with an original maturity of three months or less will qualify as a cash equivalent. For example, a three-month treasury bill is a cash equivalent because its original maturity is three months or less.
The most common forms of cash equivalents include treasury bills, commercial paper, and money market funds.