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What Is near Cash?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 26 September 2016
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    Conjecture Corporation
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"Near cash" is a term used to describe assets that are not currently in the form of spendable cash, but could be converted into cash within a short period of time. Assets of this type may include the balances of accounts found in a certificate of deposit that is about to reach maturity, the balance in money market funds, or even impending income from the rental of property. Near cash is considered a form of liquid asset, although the two terms are usually used to refer to slightly different types of assets.

One of the characteristics that near cash and liquids assets share is that both types of holdings can be converted to cash quickly. Typically, a liquid asset will be in the form of some sort of asset that can be sold in the marketplace, such a bond issue or a piece of real estate with relatively little difficulty. With these assets, there may be some potential for incurring a difference between the fair value of the asset and the actual sale price, but it is usually minimal.

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Near cash is more often applied to assets that are not necessarily sold in the marketplace but are eligible for conversion to cash in the near future. Short-term CDs are one example, since once the certificate of deposit reaches maturity, the investor can either choose to cash out the CD and take the balance including the accumulated interest, or reinvest in another CD or some other asset. In like manner, money market funds can normally be withdrawn with relative ease with little or no penalty.

Income that is earned and about to be received can also qualify as near cash. For example, a landlord could consider pending rental payments from a tenant to be more or less a cash asset that will shortly be in hand, provided the tenant pays rent on time. For a business, balances due on customer accounts that are anticipated to be settled with 30 days may also be classed as near money or cash, even though the assets cannot be utilized at the present time. As long as there is a reasonable expectation that the proceeds will be received shortly, revenue earned from various sources may properly be considered near cash.

One of the benefits of being able to identify near cash assets is that lenders will sometimes consider those resources when approving a short-term loan. In some cases, it is possible to pledge near cash assets as collateral on those loans. For the duration of the loan, the debtor cannot convert the asset into cash without the express permission of the lender, except as a means of settling the balance due on the loan. Should the debtor default, the near cash asset may be claimed to settle any remaining balance.

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