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What Is Working Cash (Explained: All You Need To Know)

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What Is Working Cash

In business, working cash refers to the amount of cash a business has in its bank accounts available to fund its current business operations.

For example, if a business has $10,000 in its commercial checking account, that’s considered $10,000 of working cash.

Working cash is generated whenever the company receives client payments for the goods and services sold or through financing options.

For instance, if a client pays a $15,000 invoice and the company deposits that money in its commercial accounts to fund its business operations, that client payment becomes working cash.

Alternatively, if the company secures a line of credit and transfers some of the line of credit funds to its commercial accounts to use to pay for business expenses, the working cash is effectively financed through the line of credit.

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Working Cash Formula

How do you calculate working cash?

To calculate working cash, you can use the following formula:

Working Cash = Checking Accounts + Saving Accounts + Cash In Non-Interest Bearing Account + Petty Cash
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The objective is to add up all the “cash” reserves of the company that is used to fund short-term business needs.

This formula is different from the working capital formula, which is Current Assets less Current Liabilities.

Working Cash Allowance

Working cash allowance refers to instances when a company allocates some of its cash reserves out of its working capital to compensate for certain expenses.

For example, a company can provide an employee working cash allowance to have the employee pay for travel expenses, purchase materials, buy certain goods for the business, and so on.

The working cash allowance, as the name suggests, is an amount that is allocated by the company.

For example, the allowance can be $500 or $1,000 (a specific amount).

The allowance can also be based on a total cap (like any amount not exceeding $2,000).

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Working Cash Example

Let’s look at an example of working cash to understand the concept better.

“Working cash” refers to the cash available to a company to fund its current business operations.

Let’s assume a company has $100,000 in its commercial accounts, $200,000 in saving accounts, $1,000,000 in accounts receivable, and $5,000,000 in inventory.

The company’s working cash is calculated by adding the cash in the commercial accounts and saving accounts, giving us a total of $300,000.

However, the company’s working capital is the sum of all ($100K + $200K + $1M + $5M) giving us a total of $6,300,000.

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Working Cash vs Working Capital

What is the difference between working cash and working capital?

Working cash is essentially a component of working capital.

When you talk about working “cash”, you are targeting “cash” as a specific type of asset allowing a business to pay for its short-term expenses and obligations.

Working cash includes cash in a company’s checking account, savings account, and any other interest or non-interest bearing accounts where cash is placed by a company.

On the other hand, working capital refers to a series of current assets available to a business to fund its business operations.

Working capital includes cash, accounts receivables, short-term marketable securities, and inventory.

Working capital represents assets that can readily be turned into cash to fund the business’ operations.

You can calculate working capital by taking a company’s current assets and deducting its current liabilities.

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Takeaways 

So there you have it folks!

What does working cash mean?

Working cash is a business term used to refer to “cash” as an element of its working capital.

Since working capital is composed of current assets like cash, accounts receivables, and inventory, working cash is a term loosely used to refer to the cash portion.

For example, a company can have $10,000 in cash, $50,000 in accounts receivable, and $100,000 in inventory.

The company’s working capital is the sum of all of these parts ($10,000 + $50,000 + $100,000) which is $160,000.

However, the working cash portion is $10,000.

Now that you know what is working cash and how to calculate it, good luck with your research!

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Editorial Staff
Hello Nation! I'm a lawyer by trade and an entrepreneur by spirit. I specialize in law, business, marketing, and technology (and love it!). I'm an expert SEO and content marketer where I deeply enjoy writing content in highly competitive fields. On this blog, I share my experiences, knowledge, and provide you with golden nuggets of useful information. Enjoy!

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