Nominal income is the amount of an employee's salary that is paid in cash, whereas real income is the amount the employee receives after accounting for inflation. This means that the nominal income is always the highest of the two figures. Even when an individual has access to more money, her purchasing ability may be low because of inflated prices.Know More
Knowing the difference between nominal income and real income is essential in lending and bond holding. In these situations, borrowers need to charge enough interest to balance out the amount of inflation when the loan fully matures. Without differentiating between real income and nominal income, the borrower actually loses money.
The Federal Reserve is in charge of keeping inflation at a useful and sustainable level. If inflation gets out of control, specific monetary policies are implemented to create balance. Such policies include limiting the amount of money and the amount of credit that is available in the market at any given time. The main goal is to lower the system's level of liquidity. The result of these policies is that they can make credit more expensive to obtain, which can impede economic development and lower prices.
Knowing the difference between real income and nominal income is also important when investing since the end goal is to have both income and purchasing power.Learn more about Personal Banking
The purpose of petty cash is to pay for minimally priced business transactions in a cost effective way. Petty cash can only be used for transactions that are not reported to the Internal Revenue Service.Full Answer >
Liquidity refers to the assets a company has that it can quickly and easily convert to cash without losing value, and profitability is a company's ability to make a profit. Companies with high liquidity trade often and have a large number of liquid assets, those things that can be bought and sold quickly, as needed.Full Answer >
According to the United States Uniform Commercial Code, a person must be identified as the authorized recipient of a payable instrument to transform it to cash. Even though there is no universal identification requirement in place, a form of ID is typically required to cash a check at a bank.Full Answer >
Writing a check for cash can be done two ways. A person can either write the word "cash" in the "Pay to the order of" blank line on a check or put his own name in that payee space.Full Answer >