The cash account is from the bank account you have set in Banking and General Ledger -> Bank Accounts
The GL accounts for the bank account are assigned here.
I think you can only have one cash bank account.  From what I can see thats one GL account per bank account, you cannot use the same GL account for more than one bank account
A bank account in FA does not have to be tangible - hence the petty cash box and the cash till are classed as bank accounts in FA

All about bank accounts in the wiki
The two forum posts mentioned in the wiki are worth a read as well

I am trying to create a direct invoice where a customer buys a product and pays in cash on the spot, as in a POS sales fashion.
When I specify a cash payment term the field of cash account is not activated and no input is allowed. The transaction results in crediting the AR and debiting an empty account.
What am I doing wrong?