Cash is a primary asset in business. It is easily exchangeable for other goods and often is the medium most companies require for completing business transactions. A term associated with this medium is liquid cash. Companies and financial institutions use this term to describe the ease with which companies can move cash among transactions.
Liquid cash represents the most fluid asset a company can own. These items can include cash, demand deposits, time and savings deposits, and short-term saving accounts easily converted to cash.
A company also may own items called cash equivalents. These items are not cash but easily can be converted to cash in a short time period. Common cash equivalents include Treasury bonds and money market funds through financial institutions.
Companies retain cash or cash equivalents to pay bills whenever necessary. Rather than keeping copious cash amounts on hand, however, making small short-term investments allows a company to earn additional cash through interest. The money remains liquid while adding benefits to the company.
The balance sheet contains all assets in a company. Cash and cash equivalents are often first in the current asset section. Current assets typically last less than 12 months in a company’s operations. Companies usually will list current assets in order of liquidity, hence the placement of cash and cash equivalents.
- "Fundamental Financial Accounting Concepts"; Thomas P. Edmonds, et al.; 2011
Kirk Thomason began writing in 2011. In addition to years of corporate accounting experience, he teaches online accounting courses for two universities. Thomason holds a Bachelor and Master of Science in accounting.