Cash and Cash Equivalents

In our daily life, we always need cash or money to buy food and clothing, to pay tuition fees, stationery and books, to pay our bills, to travel to any place we need to go, to satisfy the need of our family, and to buy everything we need in order to live. Cash is the medium of exchange.

We can say “cash” has special role not only in our life but also in the business. Cash intent to make the operation survive in their daily transactions weather it is small amount or big value of money.

In accounting the cash account can be identify as Cash, Cash on Hand, Cash in Bank, Petty Cash Fund, and other cash equivalents. Cash and cash equivalents are the most liquid assets.

Cash and cash equivalents refer to coins, money, bills and any currency with monetary value that are easily convertible into cash such as bank fixed deposit account, money orders, paper cheques, gift certificates, treasury bills, money market holdings, marketable securities, commercial papers, short-term government bonds and any stored value. Cash equivalents refer to other investments that can be matured in 3 months or any investment that can be matured within 12 months.

The cash and cash equivalents will be reported as the first caption of current assets in the balance sheet. It can be used to pay for the business operating expenses for normal operating cycle and capital expenditure to be used for long-term operation.

Cash comes from capital contributions of business owners, loans from the bank, sale of products and services, sale of assets and other sources of income. It depends upon the size of the company in controlling the cash fund, petty cash fund, revolving fund, or any cash reserve for any cash payable for daily transactions. Normally, most of the payable of the company should be paid in cheques. However, they should pay some other small payable which includes payment for snacks for representation expenses, for small repairs, small monthly dues, daily employees’ benefits (coffee, creamer, sugar and other small amount of things to motivate the staff), for transportation expenses to deposit the collected cheques and to go to regulatory authority for legal requirements and other urgent small payables.

Cash and cash equivalents are very important not only in our life but also in the business operation. The reality of life can be compare in business accounting transaction. Imagine if there is no cash in the world, do you think “barter” can still be effective?