Cash is a physical form of money, such as banknotes and coins in circulation. As an accounting term, cash represents the most liquid form of assets a company or individual can have.
Common phrases related to cash
Available cash – is the sum of money a person or a company has disposable. This could also include money held in financial institutions (such as deposits or money in a savings account) which can be withdrawn at a moment’s notice. A person or a company can be wealthy, but not liquid if they have a high level of assets but a low level of cash reserves or no cash at all.
Cash in – is the process in which you exchange something for money. The most common example is when you cash in your check, meaning that you exchange your check for money. After the transaction, instead of a check, you have cash in your pocket.
Cash in accounting
In accounting cash is commonly found in two main financial statements:
Balance sheet – on the balance sheet, cash is recorded as the most liquid form of assets as it is available on demand. The degree of an asset’s liquidity is based on the speed at which the specific asset (property, plants, equipment, etc.) can be converted into cash.
There is also an item named “cash equivalents” recorded on balance sheets. This item represents assets which could be efficiently (with low cost and in a short period of time) converted to cash. Some examples of cash equivalents are money market instruments, short term bonds, etc.
Cash flow statement – records all cash inflows and outflows. This statement does not record sales on credit until the client transfers the money (cash) to the company.
The meaning of cash is the same in different countries, but the difference can be found in the arrangement of cash i.e. the banknotes and coins. The system of money represents the currency of the country, thus different countries have different currencies. For instance, in the USA, the currency is the US dollar, the Canadian dollar is the currency in Canada, and the Euro is the currency in member countries of the Euro zone in the European Union. While there are different currencies in different countries, one can exchange one currency for another (by buying or selling currencies) in their home countries.