There are two ways you can deal with cash: You can be set up as a separate account; or you can create a Category specifically for cash.
A cash account is similar to a checking account. You enter a starting balance (the amount of cash you have on hand) and record all purchases made with cash in the account register, selecting the Category that is associated with each purchase. For example, if you spent $20 in cash at a restaurant, you would enter the transaction in the cash account, selecting Food: Restaurants as the Category.
When you take cash out of the bank, you record a transfer from that account to the cash account.
This method works well if you want to know exactly what Categories are affected by cash purchases and if you would like to track all of your cash purchases.
Cash as a Category
Alternatively, you can treat cash as a Category. This works well if you don’t spend a lot of cash and don’t need to know exactly what Categories were affected by cash purchases. You can call this Category “Fun Money”, “Spending Money”, “ATM Withdrawals”, “Cash”, or anything you like.
Using this method, you will create a Category for cash, and anytime you take cash out of the bank you would use that Category to record the money as spent (even if the actual cash is in your pocket, purse, or wallet). This way, you have accounted for the withdrawal in YNAB, but are free to spend the cash without having to come back and record in YNAB.