Balance Sheet Analysis
If you are in a "cash bind" or other financial crisis, you need to pay close attention to your cash position. Look primarily at the monetary assets and liabilities. Monetary assets are cash and those assets that you can turn into a specified amount of money. Monetary liabilities are liabilities requiring the payment of a specified amount of money--most liabilities are monetary. You can estimate how much cash is coming in from payments on accounts receivable and cash sales and how much cash you must disburse for payroll, current invoices, and accounts payable.
If you have an ample cash flow, you still need to examine the situation. For example, you may have more in your checking account than you need. If so, you may consider moving some of it to a money market fund or other place where it will earn a good return. Some investment institutions automatically transfer your excess cash from a checking account to an investment earning a higher return.
In examining the cash position, remember that the bank's records probably show that you have more cash than your Cash account shows. You make a credit to Cash on the day you write and mail the check, but the bank only reduces your cash balance when the check deposited by the recipient clears through the banking system. This process takes a few days, sometimes longer if vendors or employees are slow in depositing your checks.
As a result, forecasting your future cash position may indicate that you should think about obtaining more cash--by borrowing, or by reducing your expenses--or that you likely have unneeded cash, which you should invest in some instrument that earns a return.