Short-term investments are those that can be readily converted into cash. This classification includes any investment instruments that will mature within one year or which are expected to be liquidated within one year. Examples of these instruments are money market funds and marketable securities. Most investments that are actively traded can be considered short-term investments, since they can be easily liquidated.
A business typically stores a large part of its excess funds in short-term investments so that it can earn a small return while still being able to access the funds for its operating needs on short notice.
Presentation of Short-Term Investments
The amount invested in short-term instruments is classified as a current asset on the balance sheet of the investor. When these funds are converted to cash, the corresponding amount shifts over to the cash line item on the balance sheet. If these funds are instead re-invested in longer-term investments, then the corresponding amount shifts over to the long-term assets section of the balance sheet.
