Cash - What is cash?
Cash is the most liquid asset and is vital for the solvency of a company
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From an accounting perspective, cash is the most liquid asset a company can possess. A cash balance indicates that a company has cash on hand and can use that cash however it wishes.
Cash includes more than just the physical traditional bills and coins. Cash can include any other currencies, as well as undeposited cheques and amounts in a current account.
Cash in accounting
Cash is classified as a current asset on the balance sheet and is therefore increased on the debit side and decreased on the credit side.
Cash will usually appear at the top of the current asset section of the balance sheet because these items are listed in order of liquidity.
Any asset that can be liquidated for cash within one year can be included as cash, these are known as ‘cash equivalents’.
Where does cash come from?
Cash is created from the sale of goods or services. It can also come from investors, personal funds of directors or owners, or can be loaned from a bank.
As the simplest method for exchanging payment for goods or service, cash provides a fast, reliable, and uncomplicated way to complete a transaction. It is also a useful asset because it retains market value over time.
Cashflow statements provide an outline of the incoming and outgoing cash within a company and is an important part of managing business finances. This information is used to form a cash flow statement, a crucial document for potential investors.
Downsides of cash
How can cash be a bad thing? As the most liquid asset, a reliable and immediate way to receive payment for a product or service, could there really be any negatives?
Unfortunately, yes. Cash does not come without a slightly obvious downside. Businesses that keep large amounts of paper bills on premises may be at risk of theft.
Cash can also be subject to inflation. Inflation occurs in the economy when prices increase, meaning that each note carries less value than previously. This is known as ‘purchasing power’.
Cash and Debitoor
Each Debitoor account has a Cash account ready for you to fill. You can use this account to enter payments on invoices, register payments for expenses, and more. Refer to this account at any time to view current cash balances.