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What is cash on hand? Definition, benefits, and drawbacks in 2025

By QuickBooks
Published on November 23, 2025

Whether you’re running a small business, managing a nonprofit, or just trying to stay financially prepared at home, cash on hand is one of the most important numbers to know. Let’s break down exactly what counts as cash on hand, how much you should have, where it shows up on your balance sheet, and why it matters.

Cash on hand definition 

Cash on hand is the money an individual or business can tap into right away. This can include physical cash (coins and bills), undeposited checks, or the balance in a checking account. You use it to pay bills, handle emergencies, or cover everyday spending.

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How much cash on hand should a business have?

As a general rule of thumb, it’s recommended to have enough cash to cover three to six months of operating expenses. That means if your business spends $20,000 a month on expenses like rent, payroll, inventory, and utilities, you’d ideally want $60,000 to $120,000 in accessible funds.

Why is cash on hand important?

Cash on hand matters because it gives you or your business a financial safety net. With readily available cash, you can handle day-to-day expenses, cover emergencies, and make smart decisions without delay. From an accounting perspective, cash on hand improves liquidity—i.e., the ability to meet short-term obligations without borrowing or selling assets.

Let’s look at why cash on hand is specifically important for individuals, businesses, and organizations.

For individuals

For individuals, cash on hand can help you:

  • Cover unexpected expenses like car repairs or medical bills.
  • Make everyday purchases when digital payments aren’t an option.
  • Handle emergencies such as job loss or natural disasters.

For businesses

For businesses, cash on hand helps:

  • Pay suppliers, employees, and bills on time.
  • Handle slow seasons or revenue dips without panicking.
  • Pursue growth opportunities, such as investing in new equipment or inventory.

For organizations

If you run a nonprofit, school, or community group, cash on hand can help:

  • Meet payroll and program expenses.
  • Maintain donor and board confidence.
  • Respond to funding gaps or delays.

Disadvantages of cash on hand

While it’s smart to keep some cash on hand for day-to-day needs and emergencies, holding onto too much of it, especially in physical form, has some disadvantages.

Risk of theft or loss

Physical cash can be lost, stolen, or damaged, especially if it’s kept in registers, safes, or on-site locations without proper security measures.

No earning potential

Cash that just sits around doesn’t grow. It doesn’t earn interest, appreciate in value, or help build credit.

Inflation eats away at its value

Over time, cash loses value as prices go up. So, the same $100 in your drawer today might not stretch as far a year from now.

It gets harder to manage as you grow

If your business starts handling a lot of cash, keeping track of every dollar can get messy. It takes more time, increases the risk of accounting errors, and can create stress when your financial statements don’t balance out.

Types and forms of cash on hand

When it comes to the types and forms of cash on hand, these are generally the main ones:

  • Physical currency
  • Checking accounts
  • Savings accounts
  • Undeposited checks
  • Petty cash
  • Cash register or drawer balances
  • Money market accounts
  • Cash equivalents

These forms vary slightly depending on whether the context is personal finance or business accounting, which we’ll break down next.

Specific examples of cash on hand

Understanding cash on hand is easier when you see how it works in everyday life. Here's how it typically breaks down for individuals and businesses:

Cash on hand for individuals 

  • Physical currency: This includes paper bills and coins kept in safes, wallets, or drawers. It's the most basic and immediate form of cash.
  • Checking accounts: These are bank accounts used for daily spending. Funds are available on demand through checks, debit cards, or transfers.
  • Savings accounts: These accounts are intended for saving rather than daily use. They typically earn interest and still provide fairly quick access to cash when needed.
  • Money market accounts: A type of interest-earning bank account that usually comes with limited check-writing ability and is considered liquid enough to be counted as cash on hand.
  • Undeposited checks: Checks you’ve received but haven’t taken to the bank yet. They still count as available cash.

Cash on hand for business and organizations

  • Petty cash: A small, on-site stash of physical cash that businesses use to cover minor, everyday expenses like postage or office supplies.
  • Cash register balances (cash drawer): The starting amount of money kept in a cash register for making change and handling in-person sales.
  • Business checking accounts: These are the go-to accounts for paying bills, running payroll, and managing all the cash your business needs to run day to day.
  • Business savings accounts: These accounts are typically used to set aside funds for future needs, like taxes, large purchases, or emergency reserves. It’s not meant for everyday use, but the money stays liquid and easy to move when needed.
  • Cash equivalents: Very short-term, low-risk investments (e.g., Treasury bills or commercial paper) that can be quickly converted into cash, usually within 90 days.

Real-world business examples

Some of the largest companies in the world maintain massive cash reserves, both for operational flexibility and to weather downturns. To put things in perspective, here’s how much cash some big-name companies keep on hand:

  • Apple: As of Q2 2025, Apple reported holding over approximately $48.5 billion in liquid cash and short-term investments. 
  • NVIDIA: NVIDIA, a giant in the AI and graphics space, held about $53 billion in liquid cash as of April 2025, which is money that can be used for acquisitions, research, or weathering market changes.
  • Berkshire Hathaway: Warren Buffett’s company is famous for its cash-heavy strategy, and it broke records in Q1 2025 with $347.7 billion in cash and short-term investments.

Difference between petty cash and cash on hand

Petty cash and cash on hand are closely related, but they’re not interchangeable.

  • Cash on hand is a broad term. It includes any cash or cash-equivalent funds a business can access right away, like the balance in a checking account, undeposited checks, or money in a register. It’s part of a company’s total liquidity and shows up on the balance sheet as a current asset.
  • Petty cash is a specific kind of cash on hand. It’s a small amount of physical cash that’s kept on-site (usually in a lockbox or drawer) for minor, day-to-day expenses like office snacks, postage, or small supply purchases.

People often confuse the two because petty cash is a subset of cash on hand. Here’s a simple breakdown:

Understanding related accounts and concepts

When talking about cash on hand, you may confuse it with other accounting terms. Let’s break down a few commonly mixed-up concepts to help you tell them apart at a glance.

Undeposited funds vs. cash on hand

  • Undeposited funds are payments you’ve received (e.g., checks or cash) but haven’t made it to the bank yet. It’s money you technically have, but it’s still sitting in a drawer or waiting in your accounting software.
  • Cash on hand includes those undeposited funds plus any other cash you can use right now, like what's in your checking account or register.

Bank accounts vs. cash on hand

  • Your business bank accounts are likely where most of your money lives. That includes checking and savings accounts that your business uses every day.
  • Cash on hand includes what’s in those accounts and any actual cash in your office, petty cash drawer, or undeposited checks.

Cash basis vs. accrual accounting

Cash basis and accrual accounting are about how you recognize money in your books:

  • Under cash basis accounting, you only record income or expenses when money changes hands, so cash on hand plays a central role.
  • Under accrual basis accounting, you record income and expenses when they’re earned or incurred, even if no cash has been exchanged yet.

What is not considered cash on hand?

Not everything that seems like cash in hand actually qualifies. Some assets might eventually turn into cash, but they’re either too restricted, too risky, or not liquid enough to count.

Here are some common examples of what isn’t considered cash on hand:

  • Accounts receivable: This is money owed to your business, usually from invoices you’ve sent. You expect to receive it, but until it hits your account, it doesn’t count as cash on hand.
  • Inventory: Even if your inventory is worth thousands, you’d have to sell it first to turn it into cash. That makes it an asset, but not a liquid one.
  • Long-term investments: Stocks, bonds, or other financial investments you’re holding onto aren’t considered cash unless you plan to cash them out right away.
  • Restricted cash: This refers to the money that businesses are required to set aside for specific purposes, such as loan covenants or security deposits. If the money isn’t freely available, it’s not cash on hand.
  • Fixed assets: These are long-term items your business owns and uses to operate, like buildings, machinery, vehicles, or office equipment. They’re valuable, but not easily converted into cash, which means they don’t count as cash on hand.

Cash on hand on a balance sheet 

When you look at your company’s balance sheet, cash on hand is part of a bigger category called “cash and cash equivalents.” You’ll find it listed near the top, under “current assets.” Why? Because it’s one of the most liquid resources your business has—i.e., funds you can use right away to cover bills, buy supplies, or handle unexpected expenses.

Important calculations related to cash on hand

To understand how cash on hand fits into your overall financial picture, it helps to look at a few key calculations. Let’s walk through a few of the most useful ones:

Days cash on hand (DCOH)

This metric shows how many days your business could keep running if no more cash came in. It’s a key liquidity measure, especially for nonprofits, healthcare organizations, and seasonal businesses.

Days cash on hand = Cash and cash equivalents ÷ daily operating expenses

Example: Let’s say you’ve got $60,000 in the bank, and your business spends about $3,000 per day to operate. 

  • $60,000 ÷ $3,000 = 20 days of cash on hand

That means you could keep the lights on for about three weeks, even if your revenue suddenly stopped.

Cash ratio

The cash ratio shows how easily you could pay off your short-term debts using just your cash, not inventory or accounts receivable. It’s the most conservative liquidity ratio.

Cash ratio = Cash and cash equivalents ÷ current liabilities

Example: You have $100,000 in cash and equivalents and $150,000 in current liabilities.

  • $100,000 ÷ $150,000 = 0.67 cash ratio

A ratio under 1 means you don’t have enough cash on hand to cover all short-term debts, but that’s common in many industries. It’s just one piece of the bigger financial picture.

Cash flow (general calculation)

Cash flow shows how much cash is moving in and out of your business. It helps you track whether your business is growing or struggling.

Net cash flow = Cash inflows - cash outflows

Example: Your business brought in $25,000 this month and spent $18,000.

  • $25,000 - $18,000 = $7,000 in positive cash flow

A positive number means you’re growing your cash position. A negative number isn’t always bad, but it’s something to keep a close eye on.

Net cash position

Net cash position shows how much liquid cash your business has once you subtract total debt. It’s a good snapshot of your true financial flexibility.

Net cash = Cash and cash equivalents - total debt

Example: You have $500,000 in cash and equivalents, but you also owe $300,000 in business loans and credit lines.

  • $500,000 - $300,000 = $200,000 net cash

A positive net cash position gives your business breathing room. A negative one means you rely on borrowed money more than you hold in cash.

Cash burn rate

This is a critical metric for startups or businesses with negative cash flow. Burn rate shows how fast you’re spending cash, especially when you’re not yet profitable.

Burn rate = Cash outflows ÷ number of months

Example: Your startup spent $150,000 over the past 3 months.

  • $150,000 ÷ 3 = $50,000 monthly burn rate

If you’ve got $200,000 in the bank, you’ve got about four months of runway—i.e., how long your company can keep operating before it runs out of cash.

Common misconceptions about cash on hand

There can be some confusion surrounding cash on hand. Let’s clear up a few of the most common myths and set the record straight.

Cash on hand is the same as profit

Not true. Cash on hand is how much money you can access right now. On the flip side, profit is what’s left after you subtract your expenses from your revenue.

You can be profitable on paper and still run out of cash, especially if customers are slow to pay or you’ve got a lot tied up in inventory. This is why a business can go bankrupt even while showing a profit on its income statement.

You can never have too much cash on hand

Not always true. It might feel safer to sit on a pile of cash, but holding onto too much cash can actually cost you. Idle cash doesn’t earn interest, doesn’t grow your business, and may lose value over time due to inflation.

It’s smart to strike a balance. Keep enough cash to stay flexible, but put some money into paying down debt, investing, or upgrading operations.

Cash is obsolete or will be soon

Not quite. It’s true that more people are using cards, apps, and contactless payments than ever. But that doesn’t mean cash is going away. In fact, according to the Federal Reserve’s 2025 Diary of Consumer Payment Choice, cash made up 14% of all consumer payments in 2024, ranking third behind debit and credit cards. Plus, during emergencies or tech outages, cash is often the only option that still works.

Reconciling and troubleshooting cash on hand

Even if your bookkeeping is on point, it’s normal to run into a few bumps when keeping track of cash. That’s where bank reconciliation comes in. Let’s break it down.

Reconciling your cash account

Reconciling your cash account means comparing your books to your bank statements to ensure they match. Here’s how to do a bank reconciliation step-by-step:

  1. Pull your records together: Start with your internal cash records and the latest bank statement. You want to make sure you’re looking at the same time period for both.
  2. Check the starting balance: Ensure the starting balance in your records matches the one on your bank statement. If they don’t line up, you’ll want to figure out why before moving on.
  3. Match transactions: Go line by line and match transactions (deposits, withdrawals, payments, etc.) between your books and the bank. Mark off the ones that match.
  4. Spot the differences: Look for transactions that appear in one record but not the other. Common issues include outstanding checks or deposits in transit.
  5. Make adjustments: Update your records to include any missing items—e.g., bank fees, interest earned, or corrections.
  6. Wrap it up: Once you’ve accounted for everything, your adjusted cash balance should match what the bank shows.

Common issues and how to resolve them

Even with regular reconciliations, problems can still happen. Here are a few common issues and how to fix them:

  • Timing lags: Some transactions take a few days to post. For example, a check you wrote might not clear right away. Just make a note of it and double-check it next time.
  • Data entry slip-ups: Maybe you accidentally typed $850 instead of $580. It happens, but double-check amounts and dates carefully when reconciling.
  • Missing transactions: If something is in your bank statement but not in your books (or vice versa), it’s time to dig in. Go back through receipts, invoices, or even your email to fill in the blanks.
  • Duplicate entries: Recording the same transaction more than once can inflate your cash balance. Review your records for duplicates and remove any found.
  • Bank errors: While rare, banks can make mistakes. If you identify an error on the bank's part, contact them right away to resolve the issue.

Best practices for managing cash on hand in QuickBooks

QuickBooks makes it easy to stay on top of your cash flow by helping you record transactions, reconcile balances, and get real-time insights into where your money is going.

Here are a few best practices to make the most of your cash-on-hand setup in QuickBooks:

  • Create a separate “Cash on Hand” account under your chart of accounts to track physical cash used for petty expenses or customer transactions.
  • Record every transaction as it happens to help avoid discrepancies and keep your books clean.
  • Reconcile regularly, especially if you're using petty cash. You’ll catch errors faster and ensure your records match your actual cash.
  • Limit access and assign roles in QuickBooks to keep your financial data secure and organized.

Try QuickBooks Online and take the guesswork out of managing your business’s cash on hand.

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