Key Concepts
A business holds cash in two forms:
| Type | Description | Example |
|---|---|---|
| Cash in hand | Physical cash kept by the business | Notes and coins in a cash register or safe |
| Cash at bank | Cash deposited with the bank | Funds in the business's bank account |
Both cash in hand and cash at bank are current assets in the Statement of Financial Position.
When a business makes a payment, the balance in cash in hand or cash at bank decreases. Payments may be made in cash, by cheque, or by electronic funds transfer.
Examples
| Transaction | Cash in hand | Cash at bank |
|---|---|---|
| Made a cash sale | Dr | — |
| Cash deposited into bank | Cr | Dr |
| Payment by cash | Cr | — |
| Payment by cheque | — | Cr |
Bank Overdraft
A bank overdraft occurs when a business has spent more money than it has in its bank account. The bank covers the shortfall, so the business owes the bank money.
| In the cash at bank account | Credit balance |
| In the Statement of Financial Position | Current liability |
A bank overdraft is a current liability — not a current asset. It is effectively a negative bank balance: the business owes the bank instead of having money in the bank.
Two separate accounts — never combined. Cash in hand = notes and coins kept on the premises. Cash at bank = money in the business's bank account. Both are current assets. If cash at bank has a credit balance, it is a bank overdraft (current liability, not an asset).
Treating cash in hand and cash at bank as one account. They are separate ledger accounts and must be recorded and reported separately.
Treating a bank overdraft as a current asset. A bank overdraft is a current liability — the business owes the bank.