Cash surplus

Definition

Cash surplus is the excess amount of cash that remains after all expenses and obligations are met within a specific period. It indicates positive cash flow and financial health for an individual or organization.

5 Must Know Facts For Your Next Test

1. A cash surplus can be reinvested into the business, saved for future needs, or used to pay down debt.
2. Cash surplus is calculated by subtracting total cash outflows from total cash inflows during a specific period.
3. Consistently having a cash surplus allows businesses to take advantage of growth opportunities without needing external financing.
4. Businesses often aim to forecast their cash flow accurately to predict potential surpluses or deficits.
5. Managing a cash surplus involves making strategic decisions about allocation, such as investments or reserve building.

Review Questions

• What is the primary difference between a cash surplus and a cash deficit?
• How can businesses utilize a cash surplus for growth opportunities?
• Why is forecasting important in managing cash surpluses?

Related terms

Cash Flow: The net amount of cash being transferred into and out of a business.

Working Capital: The difference between current assets and current liabilities, reflecting short-term financial health.

Liquidity: The ability to quickly convert assets into cash without significant loss of value.