Cash Balance Essay

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The nature of cash direct proportionate with the liquidity of asset. Cash is the most liquid asset being the most vital element of the current assets; rather it would be more precise to state that it is only the asset with the liquidity with minimum time period. Cash may be construed as cash in hand or cash at bank or both. With the liquidity prospect cash in hand and cash at bank collectively comprise of cash of any Company. Even the bank deposits and securities with bank can be covered in cash. The basic intent of cash management is to provide the freedom to use the cash for its efficient and effective operations. Every business has to maintain cash balances to cater its various needs. The primary motive of any business is to generate enough …show more content…

All the goods and services used in the company need to be paid timely. These include payment to be made to vendors for the goods, payment of wages and salaries, payment to be made for electricity, water, fuel and other direct expenses and for the payment of indirect expenses including the administrative and financial expenses. A firm need to maintain cash balance to make the payment of these expenses timely so that the business can operate without any hurdles. To quote Bollen, “Cash is an oil to lubricate the ever-turning wheels of business: without it, he process grinds to stop.” Therefore, one of the prime objectives of cash management is to meet the requirements of payments with the maintenance of sufficient cash. b. To maintain minimum cash balance (Reserve). The second important objective of cash management is to maintain the optimum level of cash balance. This implies that the firm should have such amount of cash balance which is neither more nor less than what is required. A higher cash balance leads to idle balances ultimately incurring extra cost to the firm while it maintains low cash balances it can risk the operation of the firm because of delay in making the payments to the vendors, suppliers, etc. Hence, an effective cash management should always focus on most optimal cash balance. 4.1.4 Functions of Cash Management Facets of Cash Management / Aspect Of Cash Management/ Cash

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