Definition: Cash is the most liquid asset a company can own. A company’s cash account in its chart of accounts includes all currency and coins owned by the company as well as all deposits in the bank including checking accounts and savings accounts. Cash also includes instruments or contracts that can be deposited in a bank account like vendee checks, customer checks, cashier’s checks, certified checks, as well as money orders.
What Does Cash Mean?
The cash account, like all asset accounts, is a debit account. This means that debit or left entry in the cash account would increase the cash account. A credit entry would do the opposite.
Accounting Example
Cash is recorded as a current asset on the balance sheet. Even though cash can be saved for future periods, it is still considered a current asset because it can because it can be used in one period. Long-term assets like vehicles cannot be completely used during one accounting period.
Since balance sheets display current and long-term assets in order of liquidity, cash is always the first item on a balance sheet. Many times companies combine cash and cash equivalents on the balance sheet. Since cash equivalents are closely related to cash, the true meaning of the cash account is not distorted on the balance sheet.
If a company overdrafts its checking account, it technically has no cash and actually owes the bank money. In this case, a negative cash balance is usually not displayed as a current asset. Instead a cash overdraft is presented as a current liability.
