What is Cash?

Hopefully this is an obvious question as I am sure the quantity of it you have is important to you. In much the same way it is important to a business. However, in a business the term cash may have a broader meaning than it does to you as an individual. Cash is an asset to the business and is usually considered to be one of the current assets. The other current assets are stocks and debtors.

Under the heading cash on the balance sheet may be included a number of items of varying liquidity. A small amount may actually be cash (or readies) held in tills or as petty cash, but the majority is likely to be held in various bank accounts. However, since money in current accounts rarely earns interest, if a business has a surplus of cash it may invest it in various ways. Some will have to be in very liquid accounts so that if necessary they can get at it very quickly, but some may be tied up for longer periods of time.

As with the debtors, the amount of cash required will vary according to the line of business the firm is in. Retail firms may have higher levels of liquid cash than businesses who operate mostly on a credit basis and therefore rarely handle notes and coins.