Cash is a physical manifestation of financial resources. As mankind progressed through civilization, from a barter system into a currency system of economic transaction, cash became a focal point, as it became the main medium of exchange. The definition of cash from a business perspective is different from what it means in our everyday language. To an accountant, cash is the most liquid form of asset and it includes coins, currency (paper money), money deposited in banks, money orders, traveler’s checks, cashier checks and credit card deposits. Technology has enabled us to carry cash in less cumbersome forms such as ATM cards, debit cards and credit cards.
Some important concepts related to cash are cash advance, cash registers and cash flow. Cash advances are a mode to meet minor emergencies in finance, based on a short-term process of withdrawal. A cash register is a mechanical or electronic device for calculating and recording sales transactions. Cash flow is the amount of cash being received and spent by a business during a certain period of time.
Some businesses such as retail stores are required to keep a larger amount of cash on hand and the cash is used as a change fund and petty cash fund. They use the term “change fund” to refer to the pre-determined amount of cash that is maintained by a cash register clerk at the beginning of his shift. Petty cash fund means a small amount of cash that is used to pay for minor expenditures.
Most businesses receive cash through two main sources. The first source is cash receipts paid by customers for goods or services. Businesses may receive some of their cash through electronic transfer over the Internet or receive credit card payments over the phone. Cash is easy to conceal, move and steal. Therefore, businesses use an elaborate system of internal controls to safeguard and manage their cash.