Cash Accounts: Definition, Types, and Criteria for Cash Accounts

Definition of Cash Account – Hello sinaumedia friends . This time we will discuss one of the terms related to finance, namely a cash account. Perhaps few people know the meaning of a cash account, although we may have used it.

In finance, this term has several definitions. The following is a brief explanation obtained from some literature. The discussion of cash accounts often also involves other terms, namely cash, accounting, and bookkeeping

You are probably familiar with cash in business. The definition of cash or cash in accounting is cash paid directly without debt. However, cash has a broader meaning in the basics of accounting or vice versa. It is one of the most liquid asset classes. The higher the nominal, the higher the nature of liquidity

In a general sense, cash can be thought of as a place to store money or to pay and receive money. You can say that it is cash that is used to exchange goods, debts or services

But speaking of accounting, the meaning is completely different. A cash account is a form of accounting that is based on recording the actual transactions that occur

In this article, the discussion will be focused on his understanding in accounting. In addition, the types will also be explained, examples of how to register and the benefits for existing businesses

Definition of Cash Account

A cash account is an account that contains details about incoming and outgoing money. This is recorded to show the remaining amount of cash that must exist (cash account). Another definition of a cash account is an account that is used to record activities in the form of changes in nominal currency due to receipts and expenditures

Accounts involving money or cash and the like which are classified as cash accounts, such as demand deposits, checks, etc., can be used according to the function of money even though time deposits are not included in cash accounts, it is very useful for business

Cash Account Criteria

Because of the impact on accounting, cash accounts are considered special bookkeeping. The cash account as usual functions as the general ledger and main book of entry in an accounting

There are two criteria for a cash account, namely:

  • Availability: there must be cash available for the company’s daily expenses
  • Free: if it is generally accepted as a means of payment according to its nominal value, then each item is classified as cash

Cash and cash equivalents

Cash is a free and available tender used to finance general business activities. Loans mean that the business must have sufficient cash available to cover unforeseen business expenses.

Free means that the business is free to use cash for expenses incurred by the business. Cash is also the most liquid asset. Liquidity of a company is important information for readers (users) of financial statements to make economic decisions

According to the Accounting Standards Report (2013), cash includes cash balances and current accounts. Cash equivalents are highly liquid short-term investments that can be quickly converted into certain amounts of cash without the risk of significant changes in value.

According to Sugiri and Sumiyana (2005), creditors are very interested in information about the company’s ability to pay off its short-term obligations. With this and other relevant information, lenders can decide whether to grant or reject credit applications

Investors also pay attention to liquidity information when deciding to maintain their investment, add or even withdraw from a business

Types of Cash Accounts

According to Rizal Effendi (2013), the notion of cash is anything (whether in the form of money or not) that can be used as means of payment or means of repayment of obligations.

Cash in the company can be divided into several parts according to their designation. Cash in the company can be divided into several synchronous parts using their designation. The several types of cash in the company are as follows;

1. Petty Cash

Petty Cash is cash in the form of cash prepared by the company to pay for various expenses which are relatively small in value and not economical if the payment is by check.

In recording mini cash flows, companies generally use 2 methods of recording, namely the permanent fund system method and the variable fund system method

This type of cash is reserved for expenses such as the daily operations of the company

Examples of the use of petty cash issued include travel expenses, minimum expenses and meals, transportation, internet costs, entertainment, and office supplies such as stationery. There are several ways to record petty cash, namely:

  • Imprest method (fixed fund method), the amount is fixed every time it is filled or the small amount of cash returned will be the same as the nominal amount issued
  • Fluctuation Method, the amount changes along with the expenditure and addition of petty cash

The purpose of establishing a petty cash is:

  1. To avoid using uneconomical and unrealistic payment methods, petty cash should be used to make it more practical for the development of the company
  1. Various activities related to operations are accelerated and sudden
  1. If payment by check is not available, please provide assistance in person
  1. Assist employees to provide the best quality service to customers
  1. Pay the low price
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2. Cash In Bank (Cash in the Bank)

Cash in the Bank is money that is kept competitively by the company in a private bank account, which is a relatively large amount and requires better security. In this case, the cash at the bank always includes the checking account of the bank’s company

Examples of expenses required to use large amounts of cash, such as purchasing assets, paying rent, paying debts, and other expenses. The purpose of the formation of large cash is as follows:

  1. For direct or indirect payment of funds in large amounts, checks can be used
  1. If the costs are relatively large, it will make the company’s business activities faster
  1. Avoid unrealistic payment processes
  1. As a means of payment of large amounts of money

3. Cash Equivalents

Cash equivalents are referred to as cash equivalents, referring to company assets held for less than 3 months. These cash equivalents will be useful in unstable monetary economic conditions, examples of cash equivalents are SUN or government securities and government bonds.

4. Restricted Cash

Restricted Cash or cash that is restricted in use is cash that is deliberately set aside for significant future obligations

5. Bank Overdrafts

Bank overdrafts are companies that issue checks with a value greater than the bank’s balance

Differences in petty cash accounts and large cash accounts

The cash account is without a doubt the account you will encounter most often when compiling financial statements, as every transaction will inevitably involve the use of cash, paper, metal or some other form, but you will notice that the cash account itself is divided into two categories.

Cash accounts are divided into two types, petty cash and compound cash. It could be that an idea that is new to you raises various questions in your brain, what are the differences between the two ideas? How for example?

Fortunately, by visiting sinaumedia you will get the answer because in the following review we will discuss the difference between a petty cash account and a large cash account along with examples.

Petty cash

Petty cash or petty cash  is a type of cash or fund set aside for current expenses or business operations in a relatively small nominal amount.

Examples of expenses that use petty cash, such as:

  • Transportation costs
  • Travel expense
  • Food and drink costs
  • Purchase of ATK or office supplies
  • Entertainment costs
  • Internet fees

The formation of petty cash has several objectives, including:

  1.  Accelerate business operations that are sudden in nature.
  2.  Petty cash can be used to avoid payment methods that are considered uneconomical and impractical for company development.
  3.  Assist staff and employees in providing maximum quality service to customers.
  4.  Can be used as bailout funds or direct funds if payments cannot be made by check.
  5.  Paying expenses that require spending a little.

Big Cash

Big cash or cash in the bank  is a type of cash or funds prepared for occasional expenses or activities that require a higher nominal amount.

Examples of expenses that use large cash:

  • Venue rental fee
  • Asset purchase
  • Acquisition
  • Debt payments
  • And other costs require an amount above IDR 1,000,000.

The objectives of building substantial cash flow are as follows:

Acceleration of business operations requires relatively greater costs. Large amounts of cash are used to avoid payment methods that are deemed uneconomical and impractical for business.

Can be used as direct or indirect funds for large payments and can use checks. Pay expenses with a higher nominal amount.

Cash Receipt System

The cash receipts accounting system is a record made to carry out fundraising activities from selling cash or receivables that are ready and free to use for company activities in general.

The cash receipts accounting system is a process in which cash flows that occur in the company run continuously throughout the life cycle of the companies involved. Cash flow includes cash inflows and cash outflows.

Based on this understanding, it can be concluded that the cash receipts accounting system is a unit that collects, records transactions, and can assist leaders in processing company receipts. The forms of cash payments from customers are:

  1. Cash,
  2. Check
  3. giro
  4. bank transfers,
  5. Bank Orders

The way cash is received is that customers pay their own fees for approved transactions, invoice creditors, and reimburse for accounts payable. The cash receipts accounting system consists of two main systems, namely:

1. Cash Sales Cash Receipt System

According to Mulyadi (2008), the biggest source of cash income for trading companies comes from cash sales transactions. Based on a good internal control system, a cash sales cash receipt system requires:

  1. Receipts of cash in cash must be deposited in full immediately and subjected to internal inspection by a party other than the cashier
  1. Cash receipts from cash sales are generated through credit card transactions, which involve the credit card issuing bank recording the cash receipts

2. Cash Receipt System for Receivables

Mulyadi (2008) explains that to guarantee company cash receipts, a cash receipt system for receivables requires:

  1. The debtor pays by check or transfer through a bank account (giro bilyet)

If the company only accepts cash in checks on behalf of the company, it guarantees that any cash received from the company will be credited to the company’s checking account. Bookkeeping also guarantees the receipt of cash into the company’s bank checking account

  1. Any cash received in the form of a check from the debtor must be paid immediately and paid off to the bank
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Cash Disbursement System

The withdrawal accounting system is a system for recording all cash withdrawal transactions, including a series of processes for receiving, storing, distributing, paying, depositing and disbursing funds in the company’s operations. The cash payment system consists of two main systems:

  1. Cash Discharge Statement with Check, or Cash Disbursement Statement with Check, usually for high denominated fees
  1. Cash disbursement accounting system with cash through the petty cash fund system. This is a petty cash system used by businesses when there is a small nominal payment. This system is implemented in two ways: floating balance system and counting system

Cash flow statement

A cash flow statement, also known as a cash flow statement, is an important element that provides information about the financial position of a business for a certain period of time. A statement of cash flows is a statement detailing the cash inflows (income) and outflows (expenses) of a company during a certain period.

What is typically described on a cash flow statement include cash amounts received, such as cash income by owners and cash investments, and cash amounts incurred by the business, such as issuance costs, debt repayments, and private fishing.

The statement of cash flows is prepared after the financial statements are prepared and is prepared based on the income statement for the current period and balance sheet data for the previous period. Cash flow statements for both goods and services businesses have a classification which is divided into three types of activities, namely operations, investments, and financing

  1. Operational Cash Flow (Operational Cash Flow)

Operating cash flow is the cash flow associated with business activities during a certain period. Operating activities affect the income statement, which is presented on the accrual basis. While the statement of cash flows reflects the effect on cash. Usually the notion of operating cash flow is collecting money from customers or revenue from payment receivables

  1. Investment Cash Flow (Investing Cash Flow)

Investment cash flows are cash inflows and cash outflows related to the investment activities of a company during a certain period of time. Investing activities increase and decrease the long-lived assets that companies use to carry out their activities.

Some activities that include cash flow investing are buying and selling of fixed assets, investing in stocks, and other forms of investment. For example, buying or selling fixed assets such as land, buildings or equipment is an investment

  1. Financing Cash Flow ( Financing Cash Flow)

Financing cash flows are cash flows associated with the company’s financing activities (reducing capital and increasing capital) during a certain period. Financing activities include activities aimed at obtaining liquidity from investors and creditors needed for operations and continuation of business activities.

Some examples of financing activities are bank loans, issuing bonds, issuing shares through an IPO, issuing new shares through preference rights and others

Functions and Objectives of the Statement of Cash Flows

One of the primary functions and objectives based on the cash flow statement lies in the news presented regarding the disbursement and receipt of cash in a period. From this news the company can create financial tactics, for example valuing a company’s net assets, financial structure of a company (liquidity & solvency) and adjusting cash flows using changing circumstances and opportunities.

A company that has high net profit does not necessarily claim that the company can pay employee expenses and buy equipment. In particular, the statement of cash flows aims as;

  1. Estimating cash flows in the next period from the current period’s cash flow financial statements,
  2. Determine the ability or inability of the company to pay the company’s obligations,
  3. The basis for making decisions to improve company performance
  4. Report on the interaction of hygienic profit to changes in the company’s cash

Benefits of Statement of Cash Flows

Of course, financial reports, especially cash flow statements, provide benefits not only for the company but also for many parties, such as investors, creditors, company managers and other parties. Not only goods companies, service companies can also enjoy the benefits of cash flow statements. The following are the benefits based on the cash flow statement:

  1. View financial position using easy,
  2. Increase the company’s cash in the future,
  3. Assess the company’s ability to meet obligations,
  4. Looking at corporate financing & investment,
  5. Distinguish hygienic profit using hygienic cash flow


From the explanation above, we can conclude that a cash account is an account or account that must be owned by a businessman for the ease of recording income and expenditure of funds. Cash is divided into several categories to work with according to the conditions that occur in the business

For example, using petty cash is most effective when a business needs to spend a small amount of money to make processes run more smoothly. Meanwhile, for needs such as buying property and paying rent, cash is best used to speed up the transaction process.

Author: Ziaggi Fadhil Zahran

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