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The importance of cash
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The importance of cash
- Cash refers to all cash, cash on hand and cash equivalents.
- Businesses fail as a result of inability to find sufficient cash to settle their responsibilities.
- These factors make cash the most significant business asset, and therefore, the one that analysts and others watch carefully in assessing survivability of the business.
Over to you
The following is a list of business/ accounting events. In each case, taste the effect (i.e. Increase, decrease or none) on both cash and profit, please do so in the comment section.
| Event | On profit | On cash |
|---|---|---|
| Repayment of a loan | 1. ……… | 2. ……… |
| Making a sale on credit | 3. ……… | 4. ……… |
| Buying a non-current asset for cash | 5. ……… | 6. ……… |
| Depreciating a non-current asset | 7. ……… | 8. ……… |
| Receiving cash from a debtor/trade receivable | 9. ……… | 10. ……… |
| Buying some inventory for cash | 11. ……… | 12. ……… |
| Making a share issue for cash | 13. ……… | 14. ……… |
You will see the answers in the next step.
