Cash Is the Life-Blood of Any Business and Without It Survival Is Very Unlikely.

Topics: Cash flow, Balance sheet, Financial statements Pages: 3 (1016 words) Published: November 5, 2006
Cash is the life-blood of any business and without it survival is very unlikely. Cash is normally regarded as "just an asset that a business needs to help it to function (Atrill & McLaney, 2004, p. 124)." Though this is true, cash is also one of the essential elements needed for a business to grow and prosper. The reason why cash is so important is because "people and organisations will not normally accept other than cash in settlement of their claims against the business. If a business wants to employ people it must pay them in cash (Atrill & McLaney, 2004, p. 124)." If a business doesn't have enough cash to pay its employees and suppliers, such a business will not prosper, and it would not take long before such a business ultimately fails.

Cash is needed by every business to pay its bills and to pay off its liabilities on time so that it can survive. For this reason, it is very important for every business to monitor its cash flow in order to adequately plan expenditures. Cash flow can be defined as "the total amount of money being transferred into and out of a business, especially as affecting liquidity (Hanks,2001, p. 283)." Cash flow shows us how the company has performed in managing inflows and outflows of cash and~provides a sharper picture of the company's ability to pay bills and creditors, and to~finance growth. Cash flow management is very vital to the survival of every business. It is through cash flow management that managers can monitor cash movement over a period of time.

Cash flow shows whether a business is generating enough cash to meet its obligations and how payments due to suppliers and staff can be related to cash inflows from sales. Cash inflows "are the movement of money into a business, while cash outflows are the movement of money out of a business (" Cash flow statements are used to report the uses of cash and the beginning and ending values for cash and cash equivalents each year of a business. Operating...

References: Atrill, P. & McLaney, E. (2004) Accounting and finance for non-specialists. 4th ed. placeEssex: FT Prentice Hall pp.1-18
BT (2006) Understanding annual reports: the basics. [Internet] BT Group. Available from: [ ] (Accessed 28 October 2006)
CIMA (2001) Business basics: cash-flow management. [Internet] CityLondon: CIMA (Chartered Institute of Management Accountants). Available from: [ ] (accessed 28 October 2006)
placeClark, M. (1997) Understanding the concept of the operating cycle. [Internet] South-Western College Publishing. Available from: [ ] (Accessed 28 October 2006)
Hanks, P. (2001) The new oxford dictionary of English. Oxford: Oxford University Press pp. 283
Reider R. & Heyler P. (2003) Managing cash flow: an operational focus. New Jersey: John Wiley & Sons, Inc. pp. 9-38
Walker, J. (2006) Accounting in a nutshell: accounting for the non-specialist. 2nd ed. Oxford: Elsevier, pp.7-24
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