1. Cash Account Variations
2. Days Cash on Hand

Cash on hand comes in the form of money that a business has available at a certain time. Further, it is cash that a business has after it has paid all costs. When it comes to balance sheets, it shows that the balance held by a business is in the form of coins and notes. Unless a worker is paid in cash, they usually get paid in coins and notes, meaning there is a payment record.

Cash on hand is the funds available to companies that will be spent as necessary, instead of assets that must be sold to produce additional cash. The cash balance also determines the type of projects a company can begin, including any financial burdens that could be absorbed without borrowing money or going deeper into debt.

Note: You should ensure that you have sufficient cash available to take advantage of good deals when necessary.

Cash Account Variations

Cash may be important, but certain cash accounts are better than others. Depending on the location of your cash, it may determine your success or failure. If your company has no cash available, you must file for bankruptcy. With that, if your petty cash coffers are empty, this means that you’ll have to go to an ATM or bank.

The cash on hand is the cash balance that’s accessible. This means that it refers to all cash regardless of where it may be located.

Investments you may turn into cash in 90 days or less are usually included when assessing cash on hand. Petty cash is money that you can retain on hand to issue smaller payments in cases where you don’t want to use a credit card or check.

  • Example: If a worker spends $6.00 getting pencils, rather than writing the worker a check for him, you can pay him from your petty cash coffers.

The amount of petty cash needed depends on your requirements at the time. The amount varies anywhere from $50 to large balances, such as $200.

  • Example: Microsoft had over $50 billion in available cash. When it came to stock buybacks, dividends, or research costs, the available cash dropped to $26 billion. In addition, Apple’s cash on hand amounted to around $20 billion. In previous years, Microsoft could buy competing companies with no problem, while remaining at the top of the tech industry. Apple’s increased cash balance evened the playing field, allowing it to compete with Microsoft.

The petty cash balance you have is not important enough to have an impact on your company’s overall financial standing. For certain companies, petty cash may be cash in an undisclosed location that you use when someone needs direct cash. Moreover, it does not factor into consideration when creating financial statements. Even though financial statements usually do not mandate you to record petty cash, the cash balance of your petty cash is still part of cash on hand.

  • Note: You must determine your cash on hand balance to create cash flow statements.

A cash flow statement is a vital statement for start-up companies. Lenders use cash flow statements to assess the overall value of a business. If you have insufficient cash inflow, the cash on hand decreases and prevents you from paying debts.

Days Cash on Hand

Days cash on hand comprises the days that a company can operate in honoring expenses with the amount of cash that’s available. Owners/managers should be aware of such days in the following cases:

  • During the low end of a sales cycle season, especially in cases where there are no sales.
  • When a business starts and is not generating cash from sales.
  • During transactions regarding newer product lines, when previous sales from old products decline.

A key factor in assessing days cash on hand is if there is no cash flow from the sales. Rather, there are simple expenses in the form of:

  • Utilities
  • Rent
  • Salaries

To assess the amount of operating expenses, use an operating expenses subtotal in an income statement, and subtract the non-cash expenses (in the form of amortization and depreciation) and divide it by 365 to assess the cash outflow amount each day. Then, divide cashflow each day into the total balance of cash on hand.

To learn more about cash on hand, you can post your job on UpCounsel’s website. UpCounsel’s lawyers will give you more information about cash expenses for your business and how you can properly manage your business accordingly. In addition, they will defend your rights in court if your business faces a lawsuit.