Question

Which of the following items are included in cash?

1) balance in checking accounts
2) currency and coins
3) accounts receivable from customers
4) checks from customers
5) notes receivable from customers

Answer 1

Cash includes balance in checking accounts, currency and coins, and checks from customers but not accounts or notes receivable. M1 and M2 aggregate levels of money supply elucidate what components are considered cash and near-cash items.

Step-by-step explanation:

The items that are included in cash are balance in checking accounts, currency and coins, and checks from customers. Accounts receivable and notes receivable are not included in cash; instead, they are categorized as part of a company's receivables. To understand what is considered cash, one must be familiar with the key equation that defines the monetary aggregates: M1 includes cash and coins in circulation, checkable bank deposits, and travelers checks. M2 incorporates all of M1 plus additional components like savings accounts, small certificates of deposit (CDs), and money market mutual funds.

To give a practical example, a $1,200 balance in a checking account is part of M1, which is the most liquid form of money and includes physical currency and checkable deposits. Money in a money market account, which is worth $2,000, falls under M2 as it is a little less liquid but still accessible for use.