What is recommended for managing a short-term surplus of cash?

Investing a short-term surplus of cash to earn a return is recommended because it allows the organization to make use of idle funds rather than letting them sit unproductively. Short-term investments can provide the opportunity to earn interest or gains without tying up the cash for extended periods, thus improving the overall level of financial efficiency.

By choosing to invest the surplus, a business can potentially take advantage of market opportunities or financial products that offer reasonable returns while maintaining sufficient liquidity to meet any upcoming obligations or emergencies. This strategy aligns well with prudent cash management practices, which prioritize maximizing the return on available resources without assuming excessive risk.

Storing the cash in a physical location does not generate any return and can expose the organization to risks, such as theft or loss of value due to inflation. Using the funds for long-term asset purchases ties up cash that may be needed for operational expenses, while paying down long-term debt might not yield immediate benefits compared to investing that cash back into the business. Overall, investing a surplus is a balanced approach that allows for growth while maintaining short-term flexibility.