What do cash equivalents generally include?

Cash equivalents typically refer to short-term investments that are highly liquid and can be easily converted into cash within a short timeframe, generally within three months. These investments carry minimal risk of changes in value. Examples include Treasury bills, money market funds, and certain types of commercial paper.

Inventory items are not considered cash equivalents because they are not readily convertible to cash and typically require selling processes that can take longer. Long-term bonds that have maturities extending beyond five years do not fit the definition of cash equivalents either, as they are not short-term investments and may require time to sell or redeem. Similarly, real estate investments and physical assets do not qualify, as they involve longer conversion processes due to market conditions and potential transaction costs.

Thus, the correct answer reflects the definition and characteristics of cash equivalents by highlighting their liquidity and the ease of conversion to cash.