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Hospitality is one of the last businesses that still deals with cash, as in physical money. Although cash does not always mean physical currency, it is still what most people think of when they hear the word.

There are plenty of definitions of cash, “In economics, cash is money in the physical form of currency, such as banknotes or coins. In bookkeeping and finance, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-immediately” (Source: Wikipedia)

So what Cash are we talking about?

When you really think about it, it’s a bit of both. The ‘Cash Account’ in hospitality is often used for cash sales but also for any expenses that did not get paid from a business account. E.g. when the owner’s wife buys milk for the business during her weekly grocery shopping with her private card, it gets usually treated as paid from the cash account. So this ‘Cash Account’ we are talking about is no physical account, it is rather ‘Virtual Money’.

How much money should the balance be in that account?

That’s a rather tricky question, but not unimportant at all. If it’s too little, it weakens the position of the business and it even could throw up questions, how cash sales get accounted for. If it’s too high, it overstates the position of the business and draws a wrong picture for potential investors or buyers. But it can trick the actual owner as well.

Accountants are trained to look at core figures of your business and advise accordingly. If your business figures show a good quick ratio (that is the ratio of current assets, including cash, versus current liabilities), why would your accountant give you advice on your cash flow? Everything seems healthy in your books, so no need to worry. And people normally trust their accountant. “If my accountant is not worried why should I?” – until reality hits and you don’t know how to pay your suppliers anymore.

The best health check for the ‘Cash Account’ on your balance sheet is to ask yourself the question: If I would close the business today, how much money would I have available to pay out the debts. This amount is the only amount that should be recorded – and that will change your business statement from a ‘Virtual Statement’ to reality.