Learn more about what cash is in business.
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The most common cash definition is calling cash “the physical form of money.” While the term “cash” typically refers to bills or coins, it can also mean bank accounts, checks, or other money that is easily converted to physical cash.
A cash definition often used in business refers to anything that a company can easily liquidate as cash. For instance, a company’s cash account includes all currency, coins, bank deposits, checking accounts, and savings accounts a company owns.
The business definition of cash is what we’re most concerned with here today. You’re probably familiar with the idea that cash means currency and coins. But as an entrepreneur, wrapping your mind around the idea that the cash definition also includes bank accounts and deposits can take some getting used to.
From an accounting perspective, cash refers to the company’s current assets. Additionally, cash means any assets that can be turned into cash within one year. Likewise, a business’s cash flow (also known as a cash flow statement) shows the company’s net amount of cash. A cash flow statement is a snapshot of a company’s cash position after adding and subtracting incoming and outgoing cash and assets.
Cash is a simple, widely-accepted, and reliable form of payment. Where credit card companies require additional systems, fees, and internet connections in order to process customer transactions, cash handling simply requires a bit of arithmetic and a locked drawer. However, fewer people carry cash these days. This is partly due to the convenience of modern banking systems and the inconvenience of obtaining and carrying currency or bills.
That said, while it seems like paper money may have been around forever, this isn’t true. Paper currency dates back only to around the 18th century, and it has no inherent value like a gold coin might have. Instead, the value of paper bills is set by people’s faith in the government or bank supporting the currency. However, this ability of a government to determine the price of its currency can affect inflation and consumer prices.
If prices become inflated, there can be a mismatch between the price of goods and the value of cash. Examples of cash’s value becoming unlinked with price is in economies where it costs $100,000 to buy a carton of eggs. This happens because inflation is so high that currency has become virtually worthless.
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Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.