Learn something new every day
More Info... by email
Cash assets are any economic resource that may readily be converted to cash. These assets often retain high levels of liquidity and may be used to ensure the financial ability of a company or individual to conduct daily operations. Cash assets are normally classified as current assets for accounting purposes, but differ slightly in definition. Current assets normally are expected to be converted to cash within one operating cycle, which is commonly one year. Cash assets, however, are unique to current assets in that they generally must be convertible to cash within three months or less.
Such assets may include treasury bills, money market funds, commercial papers and other assets that may be converted to cash easily. Any other financial investment or deposit which will mature in three months or less also qualifies as a cash asset. Assets that may be financially accounted for, but not considered cash assets, include property, equipment and other investments with maturity terms greater than three months. Intangible assets, such as patents, trademarks and copyrights, are also not considered cash assets.
Companies account for cash assets in an effort to help creditors, investors and other entities make decisions regarding the company. For example, a company that has applied to a creditor for capital funds to market a new product will be more likely to receive the funding if the company's balance sheet reflects a higher cash asset ratio than other applicants'. The higher cash asset ratio usually reflects a higher probability that the company will be able to pay debt. Accounting for a company's cash assets also may enable management to determine the effects of daily decisions regarding the cash flow of the company, as the assets are reported on the company's balance sheet.
Cash assets may be calculated for an individual for much the same reasons as a company, though they are generally calculated on a smaller scale. Accounting an individual's assets may be done to determine the probability that he will pay a loan he might apply for. Assets can also be counted for personal reasons, such as a yearly review of one's financial portfolio. In some cases, the need to report these assets is for tax or debt purposes.
An individual's cash assets may include her checking and savings accounts, stock bonds and short-term deposits. The criteria for determining a cash asset is typically the same as with companies: the asset must be easy to convert into cash within three months. Regional laws and methods of calculating these assets may vary. Most often, this form of financial auditing is done by a professional, who usually understands the local laws and accepted methods.
A lot of investments are easily converted to cash immediately, but do the ones that come with penalties for early withdrawal count as cash assets? If so, is the expected penalty subtracted from the value of the asset? That math could get complicated when you're talking about a business with a lot of "low risk" investments.
One of our editors will review your suggestion and make changes if warranted. Note that depending on the number of suggestions we receive, this can take anywhere from a few hours to a few days. Thank you for helping to improve wiseGEEK!