Cash Credit

Commerce is referred to as the exchange of goods and services in a market on a large scale. Commerce is an integral part of human life that involves concepts like accounting, finance, and so on. One such concept of commerce is cash credit and money. Money is the only medium for the exchange of goods and services by making regular transactions. However, cash credit is the borrowed money to meet personal or business requirements. 

Today, in this article on the understanding of cash credit, you will get detailed information on cash credit, functions of cash credit, money, and other related topics. So, without further ado, let us get started with the introduction to cash credit meaning in the business studies study material.

Concept of the Cash Credit 

In simple terms, the cash credit is described as a short term loan that banks approve for financial institutions, companies, and businesses for meeting day-to-day working capital requirements. The borrowing company is allowed to take cash even without the credit balance up to the decided limit. Also known as CC, cash credit is like a short-term loan or finance to run a business or organisation. Since these are short term loans, the payment of the amount should be made within 12 months. 

Features of a Cash Credit 

The following are the features of cash credit – 

• Borrowing limit 

• Minimum commitment charge 

• Interest on the running balance only 

• Validity of the credit period 

• Security 

Functions of a Cash Credit 

The following are the major functions of cash credit. Let’s have a look – 

• There is minimisation or even elimination of the risk prevailing in the cash transactions. 

• Funds remittance becomes an easy process with credit instruments. 

• The cash credit system facilitates large scale production. 

• For organisations and industries, short-term credit or cash credit plays a significant role as it leads to the growth and development of the business. 

How is Credit Extended? 

There are mainly two ways to avail of credits. These include the bank loan or the credit card. For credit and money, extra questions, at this point, elucidation may be required. The cash reserves ratio is referred to when banks hold onto the cash deposits. This fund comes from the money which is being deposited by the bank’s customer. 

A part of such deposits is given out as credit at a fixed rate of interest which later acts as the income of the bank. Another popular way to avail of credits is the credit card. They are used for paying for purchased goods and services without paying any cash. In this case, the payment is done electronically. 

Introduction of Money 

In an economy, money is the most important component that cannot be ignored since it is widely accepted as a standard mode of exchange of goods and services. Where there is only one person, exchanging money with goods is not possible. Earlier, economic exchanges were given due importance, which was also as the barter system or the barter exchange. Here, there was nearly no money. Whereas the goods were exchanged with other goods. 

For example, if a person has an excess of pulses and another one has rice, then both the person can involve themselves in the barter system to meet their expectations. As the number of people becomes high, the search cost becomes pretty restrictive. Therefore, for an easy and smooth transaction, an intermediate commodity was required on which both the parties readily agreed to complete the process. This commodity is referred to as money. 

Unlike before, individuals can now buy or sell their products and services in exchange for money to fulfil their expectations. 

Main Functions of Money 

Money and credit cash performs the following functions in an economy – 

• Production – Money is required for planning, managing, executing, and deciding the several activities related to production.  

• Distribution – Another major function of money is distribution which includes the allocation of rewards regarding the work done. It includes wages, rent, interest, and so on. 

• Consumption – Money is needed to make the payment for buying goods and services. 

• Capital formation – To start the saving process, money is essential. 

• Public finance – Government receives heavy taxes from its people as a source of income which is further used for the country’s growth and development. 

Conclusion 

With this, we end our study material on the cash credit. In these cash credit notes, we studied that cash credit is described as a short term loan that banks approved for financial institutions, companies, and businesses for meeting day-to-day working capital requirements. 

We covered what is cash credit, the features of credit card cash withdrawal charges, along with its functions. Apart from this, we also mentioned money as the most prefered medium to exchange goods and services. In the later part, we also mentioned the major functions of money in detail. We hope cash credit study material must have helped attain a greater understanding of this topic.