The primary source of a company's finances comes from its cash flow. A company's cash flow can come from several primary sources, including operating income, investors, asset sales, and more. The money entering the company's cash flow will then be managed effectively to cover the company's operational costs.
Cash flow management must be carried out carefully to avoid economic crises that could threaten its stability. Furthermore, good cash flow management also makes it easier for the company to meet its obligations, such as paying salaries, operating expenses, taxes, and so on.
Companies must ensure a balance between cash inflow and outflow. This balance keeps the company's cash flow stable and prevents a liquidity crisis. Conversely, if excessive cash is not managed properly, the company could lose opportunities to invest in new projects.
So, what is meant by company cash flow? To learn more, check out the information in the following article. Let's take a look!
What is Company Cash?
Company cash is the amount of funds held by a company, which is later used to cover operational costs and business development. Company cash includes all funds held in company bank accounts, small pockets, and other easily accessible storage locations.
The stability of a company's cash flow must be monitored to avoid prolonged financial problems. If any irregularities in cash flow occur, the finance team must immediately identify the source of the problem to ensure the company's finances remain stable.
Cash flow management involves a series of steps to ensure the company has sufficient cash to meet financial obligations and support business operations.
Several important aspects of cash flow management include cash flow planning, cash flow monitoring, proper accounts receivable management, and others.
Company Cash Categories
In a company, there are two common cash categories. This cash classification is done for efficient management, based on differences in nominal value, sources of income, and utilization. The following are the most common company cash categories.
1. Cash at Bank
Cash at Bank refers to a substantial amount of funds held in a company's bank account. Cash at Bank is typically not used for operational expenses; it is reserved for unexpected, large-scale expenses.
To manage cash at Bank, companies typically use a bank reconciliation system, which is conducted routinely between the company and the bank.
Some functions of cash at Bank include making large payments, expediting business operations, supporting investments, and more.
Examples of cash at Bank include:
• Asset purchases
• Salary/wage payments
• Building rental payments
• Tax payments
2. Petty Cash
Petty cash is an amount of money set aside by a company to cover small, non-routine expenses incurred in the company's operations. These expenses are not fixed and can arise unexpectedly.
Petty cash is generally used for small transactions, those that are urgent or not particularly needed. Some functions of petty cash include expediting operational activities, facilitating procurement of goods, and so on.
Examples of petty cash include:
• Transportation or shipping costs.
• Purchase of office stationery, printer ink, or paper.
• Parking or meal expenses for business purposes.
• Small administrative expenses.
Examples of Company Cash
Now that we know the categories of company cash, here are some types of money that are considered company cash. Here are some examples.
1. Cash
One of the most common examples of company cash is cash. Cash is the amount of cash owned by the company, which is typically used for urgent operational payments.
Typically, a company's cash is stored in a safe deposit box in a secure location.
2. Money in the Bank
In addition to cash, examples of company cash also include amounts held in company accounts. Money held in the bank is typically used for temporary transactions, such as salary payments, electricity bills, building rental fees, and so on.
3. Cash Equivalents
Cash equivalents are assets that can be easily converted into cash within a short period of time, usually within three months or less.
Although not directly cash, cash equivalents are treated almost identically to cash in financial statements due to their high liquidity and low risk of changes in value.
Some examples of cash equivalents include short-term deposits, marketable securities, short-term debt securities, and others.
4. Cash from Sale of Assets
Cash from sale of assets is the funds received by a company from the sale of fixed or unused assets owned by the company, such as property, vehicles, equipment, or other assets.
The sale of these assets can generate cash that goes directly into the company's account and can be used for operational purposes, debt payments, or investments.
5. Financing Cash
Financing cash is the amount of funds a company obtains from external financing sources, such as loans or stock issuance. This type of cash is typically used to help fund a company's operations, expansion, or investments.
This cash is often used to finance large projects, reduce debt, or strengthen a company's financial position.
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