Which of the following is a cash equivalent?

• A. Accounts receivable
• B. Inventory
• C. Money market funds
• D. Treasury bills

Answer: (D)

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with negligible risk of changes in value. Treasury bills fit this best because they are very short-term government securities, traded easily, and their value is essentially fixed until they mature, making them effectively as good as cash for near-term needs. The other options don’t meet this criterion: accounts receivable are customer claims that aren’t immediately cash, inventory must be converted to cash through sale, and while money market funds are liquid, they don’t always carry the same guaranteed near-cash characteristics as short-term Treasury bills in every accounting context.