Question

The Transaction Motive for holding cash is for _______________.

• A. Safety Cushion
• B. Daily Operations
• C. Purchase of Assets
• D. Payment of Dividends

Answer 1

The correct option is B Daily Operations

The motives for holding cash is very simple. It usually happens that some time cash inflows are more than cash outflows, or cash outflows are more than the cash inflows. Hence, to cover up these situations, organization holds cash to meet the certain and uncertain situations.

Transaction motive refers to the requirement of cash by the business for its day-to-day operations. In general, the firm requires cash for payment of salary, rent, labor payment, purchase of goods, etc. On the receipt side, the firm receives cash from sale of goods, debtors etc. Some times, the inflows and outflows do not match. Hence, the firm keeps some amount of cash to bridge this gap.