Cash management and controls for receipts and disbursements

It is very important to ensure that sufficient cash is available to meet obligations and that idle cash is appropriately invested. One function of the company "treasurer" is to examine the cash flows of the business, and pinpoint anticipated periods of excess or deficit cash flows. A detailed cash budget is often maintained and updated on a regular basis. The cash budget is a major component of a cash planning system and represents the overall plan that depicts cash inflows and outflows for a stated period of time. A future chapter provides an in-depth look at cash budgeting. Although cash shortages may be a sign of weakness, such is not always the case. Successful companies may need cash for new business locations, added inventory levels, growing receivables, and so forth. To sustain growth careful cash planning must occur. STRATEGIES TO ENHANCE CASH FLOWS: As a business looks to improve cash management or add to the available cash supply, a number of options are available. Some of these solutions are "external" and some are "internal" in nature. External solutions include: Issuing additional shares of stock -- This solution allows a company to obtain cash, without a fixed obligation to repay. Unfortunately, the existing shareholders do incur a detriment, because the added share count dilutes the ownership proportions. In essence, existing shareholders are selling off part of the business. Borrowing additional funds -- This solution brings no shareholder dilution, but borrowed funds must be repaid along with interest. Thus, the business cost and risk is increased. Many companies will pay a fee to establish a standing line of credit that enables them to borrow as needed. Internal solutions include: Accelerate cash collections -- If customers pay more quickly, a significant source of cash is found. Simple tools include electronic payment, credit cards, and cash discounts for prompt payment. Postponement of cash outflows -- Companies may delay payment as long as possible. Paying via check sent through the mail allows use of the "float" to preserve cash on hand. However, one needs to know that it is illegal to issue a check when there are insufficient funds in the bank to cover that item. Cash control -- Internal control for cash is based on the same general control features introduced in the previous chapter; access to cash should be limited to a few authorized personnel, incompatible duties should be separated, and accountability features (like prenumbered checks, etc.) should be developed. Control of receipts from cash sales should begin at the point of sale and continue through to deposit at the bank. Specifically, point-of-sale terminals should be used, actual cash on hand at the end of the day should be compared to register reports, and daily bank deposits should be made. Control of receipts by mail begins with the person opening the mail. They should prepare a listing of checks received and forward the list to the accounting department. The checks are forwarded to a cashier who prepares a daily bank deposit. The accounting department enters the information from the listing of checks into the accounting records and compares the listing to a copy of the deposit slip prepared by the cashier. Controls over cash disbursements include procedures that allow only authorized payments and maintenance of proper separation of duties. Control features include making disbursements by check, performance of periodic bank reconciliations, proper utilization of petty cash systems, and verification of supporting documentation before disbursing funds. Proper bank reconciliation and petty cash systems are discussed in following sections.