Fundamental Payroll Certification (FPC) Practice Exam

Which of the following would be considered a cash equivalent closer to tangible assets?

1. Accounts Receivable

2. Inventory

3. Cash

4. Goodwill

The correct answer is: Cash

The option representing cash is considered a cash equivalent closer to tangible assets because it is a readily available resource that can be used immediately for transactions. Cash and cash equivalents are the most liquid assets on a company's balance sheet, meaning they can quickly be converted into other forms of tangible assets or used to cover immediate financial obligations. Tangible assets are physical items that can be touched and have intrinsic value, such as buildings, machinery, and land. Cash, while not a tangible asset in the traditional sense of a physical object, is the most liquid form of asset and is fundamental for conducting business operations. In this context, cash serves as the baseline for evaluating other assets and is critical for maintaining the operational liquidity of a business. In contrast, other options like accounts receivable and inventory are not cash equivalents; they represent claims to cash and goods held for sale, respectively. Goodwill, on the other hand, is an intangible asset resulting from a company's reputation and customer relationships, which does not directly equate to cash or its availability. Thus, cash stands out as the precise answer.