THE IMPORTANCE OF CASH

Key Terms:
Cash is the tangible money a business has in its possession, that it can use. It can be coins, notes or money in the bank.

What doesn’t count as cash?

 Trade credit – this is money owed to the business by customers, who may have paid on a ‘buy now, pay later’ agreement.
 Overdue bills – for example, a customer may have not paid their Sky bill on time – this would not be cash as the business is yet to receive it.
 Debtors – anybody who owes a business money – for example, when a person takes out a mortgage with a bank, they are a debtor to the bank.

Cash v Profit
 Cash is the money a business has available at a given time.
 Profit is the amount a business has made at the end of the year, once all costs are accounted for. This money can be kept or given to shareholders.
 Just because a business is profitable over the course of a year, doesn't mean it has cash available at all times. The reverse is also true!

Task 1: Why is cash important?

Reason Explanation
Helps pay for raw This means that the business can continue to manufacture their products in time, which will mean that customer satisfaction will
materials remain high and the business can build its customer base on this good reputation.
Enables the business
to pay staff's wages

Enables the business

to pay its bills

Can be used to fund

some expansion

Can attract
investment

Survival of the
business