Difference Between Cash On Hand, Cash In Hand, and Petty Cash

There are often confusion between the terms cash on hand, cash in hand, and petty cash. These terms get thrown around in business, but many people don’t know what they mean.

We’re here to clear things up. We will clarify any confusion and explain the differences between these three essential concepts.

What is cash on hand?

Cash on hand is the total cash and cash equivalents that a company has available to pay its short-term liabilities. This includes money in checking accounts, savings accounts, and any short-term investments such as certificates of deposit or Treasury bills.

Cash in hand is the available cash businesses have to operate the business. It is crucial to have sufficient cash to allow the enterprise to fully function.

To understand how much cash a company has, you must analyze the financial statements. Reviewing the cash flow statement will allow you to see all the dollars coming in and the amount you spend for a specific period.

What is a petty cash account?

A petty cash account is an account with funds used to cover small, day-to-day expenses. You can use money in this account to pay for items such as office supplies, postage, or restaurant meals.

The purpose of a petty cash account is to avoid making payments using a company’s main bank account. Processing payments through the bank can take time and may incur fees. Instead, money from the petty cash account can be used quickly and without penalty to cover small costs.

To keep tabs on petty cash, you can log all expenses through a petty cash book. This will allow you to manually track your expenditures by date. It can act as a ledger book instead of a digital record keeping system.

When the funds are depleted, you can replenish it by withdrawing money from the company’s primary checking account. This will allow you to have funds readily available when needed.

What are the differences between cash on hand, Cash in hand, and petty Cash?

Cash on hand refers to the number of liquid assets that a company has available to it at any given time. This could be in cash, coins, or cash equivalents such as unspent checks and dividends.

On the other hand, cash in hand refers to a company’s actual physical currency.

Petty cash is a small amount of money (usually $100 to $500) kept on-hand for incidentals and minor expenses.

Let’s dig deeper!

What is the difference between cash in hand and petty cash?

Cash in hand can be used for any purpose, while business owners typically use petty cash for specifically approved expenses.

For example, you might use “cash in hand” to purchase quick unexpected business items at a store. In contrast, petty cash is assigned for a particular expense, such as monthly business luncheons at a restaurant.

Also, you can use “cash in hand” for more extended purchases like increased investments, whereas petty cash is usually spent immediately within a given timeframe.

Frequently Asked Questions

What is correct between cash on hand vs cash in hand?

Two phrases often used interchangeably are “cash on hand” and “cash in hand.” Though they may seem similar, there is a big difference between them.

Cash on hand is what a company has in its bank accounts, while cash in hand is what a company has in its possession. Depending on which definition you use, cash in hand can be significantly smaller than cash on hand.

The distinction between the two is vital for businesses because it can impact their ability to borrow money or make investments. It’s best to have more “cash on hand” than “cash in hand” because the bank can trace the inflows and outflows of that money rather than keeping it in the office.

Is Cash in Hand Good?

In general, having cash in hand is a good thing as it gives you more financial security and control over your finances. Having funds readily available allows you to control and monitor your spending. However, depending on your business’s structure and goals, it can be bad.

Here’s why!

Cash in hand may be bad because it’s untraceable and anonymous from a legal standpoint, making it the preferred payment method for criminals and tax evaders.

From an economic standpoint, cash in hand is not “good” because it doesn’t generate any interest or returns. Additionally, holding large sums of currency can erode its value due to inflation or casualty loss.

Why is Cash on Hand important?

Cash on hand is necessary because it gives a business the ability to pay its bills and expenses without relying on credit. This is especially important during tough economic times when banks may be reluctant to lend money to businesses.

In addition, cash on hand can provide a cushion for businesses that experience unexpected losses or revenue shortfalls. Having capital cushion allows a company to continue operating while it hunts for new financing or works to improve its financial situation.

Lastly, Cash on hand is important because it allows a company to make short-term investments and purchases.

For example, if a company has $10,000 in cash on hand, it can use that money to purchase new equipment or invest in new product lines. Having cash on hand also gives a company more bargaining power when negotiating with suppliers.

Is cash in hand an income?

It depends on your definition of income. Generally, income is defined as the amount of money a person receives to provide goods or services. Cash in hand would be considered part of your assets, not your income. However, Cash in hand would be regarded as part of your gross income when referring to taxable income.

Cash in hand is an asset or liability?

Cash in hand is an asset because it is a part of a company’s current assets. Current assets are cash, cash equivalents, and other assets that can be converted into cash within one year. This includes short-term investments, accounts receivable, and inventory.

So, when you have cash in your register, wallet, or your bank account, it is considered an asset for a company.

Can cash be a liability in accounting?

Cash is an asset. It is capital that the company receives from revenue-generated items or services. However, money owed to another business is a liability. Accounts payable, which is funds to be paid to a supplier or credit account, is a liability.

In other words, cash on hand is an asset until it is no longer available to the business. This can be money paid out to bills, expenses, or towards account payable accounts.

What is the journal entry for cash on hand?

Cash on hand refers to money in bank accounts. With that said, the journal entry would be to debit the “Bank Account” from the chart of accounts and credit the cash account.

What type of account is petty cash?

Petty cash is an asset account. It is a form of cash on hand that is used to pay for minor expenses. The purpose of petty cash is to streamline payments for small purchases, so businesses typically keep it in a designated location or container. When tracking assets, companies usually classify “petty cash” as current assets.

The purpose of a petty cash account is to keep track of these smaller transactions so that they don’t get lost in the shuffle of the larger ones. This also makes it easier to keep track of your spending and find any discrepancies.

Conclusion

Cash on hand is the total amount of cash and equivalents a company has at a given point in time. This figure includes currency, checking account balances, short-term investments, and marketable securities. Businesses use cash on hand to meet short-term liabilities and obligations.

Cash in hand is different from cash on hand because it only refers to the company’s physical currency. Petty cash is an informal term for cash in hand used for small amounts of money, and petty cash usually refers to amounts that are $100 to $500.

You can analyze a business financial statements and review the cash accounts to see how much money is coming and out of the business. Reviewing the cash flow statements allow business owners to see available and additional cash on hand.

Consider hiring an Accountant if you are unsure how to track cash on hand or other financial activities within your business.