What is Cash Management?

Cash management in an organization is the process of handling cash.

Dealing with cash management and business it's a really a two-fold approach. 1) Plan cash receipts to meet cash payments or all the cash obligations. 2) Keep the minimum level of cash necessary to operate. 

I don't want to have an over abundance of cash because I want to make my cash make me money. So, I need to typically put it in some other kind of vehicle. I don't want to just sitting in a bank account. 

What are Internal Controls when Accounting for Cash? 

Internal controls just for cash should meet three guidelines:

• Separation of Duties - Don't have the person with custody of cash to be also the one that's doing the record keeping of it.
• Cash Receipts - Cash should be promptly deposited in the bank 
• Cash Disbursements - Payments should be made by check or EFT to create a number that's associated with it and to avoid disputes.

What are Cash Receipts?

Cash receipts concerns cash coming into the business. 

What are Over-the-Counter Receipts?

Over-the-counter receipts are in-store sales. 

All records of cash should be on the cash register at the time of each sale. This will provide me a written record of what is coming in.

What are Cash Short or Over Accounts?

Maintain a Cash Short Account. This is a specific account that this is used to account for any errors discovered between the cash in the cash register and the cash receipt amount. When closing out the register, if we're over or we're short, we have to use an account to force that match with the debits and credits. 

How would we journalize this? First, we have cash. It goes up so we're going to start by debiting cash by the actual amount we have. We will credit revenue by the actual amount. If this is different, we need to make our debits and credits equal. In that case, we will either credit or debit the Cash Short or Over account for the difference between the actual account and what we should have. In that way, Cash Short and Over is treated like an expense or a revenue.

What are Cash Receipts by Mail?

Cash receipts by mail are, as the name implies, payments of cash received through the mail. 

Ideally you want to require two people to open the mail and prepare the list of the cash received. It's a lot harder for two people to collude together 

When opening the mail, one record receipt copy is sent to the cashier who will make the deposit in the bank. They're the ones that's in custody of the cash. Then another copy is sent to the record keeper. They can put it into the books.

What are Cash Disbursements?

Cash disbursements are payment made by the business in cash. This is cash going out of the business. 

What are Internal Controls for Cash Disbursements?

Internal controls for cash disbursements make certain that cash is not being stolen or improper or unnecessary payments are not being made. 

First, we want to require all expenditures to be made by check. It is important for recording the transaction as well as the security in having the paper trail.

You want to deny access to the accounting records to anyone other than the owner or trusted agent who has the authority to sign checks.

What is a Voucher System? 

Employ a voucher system, which is a set of procedures and approvals designed to control cash disbursements and the acceptance of obligations. Basically, you get approval for expenditures. You make the expenditure with personal funds and then submit for reimbursement. 

What is Petty Cash?

Petty cash is a fund that you used to make small expenditures that cannot wait for the formal check writing process. If you've ever worked the place with petty cash drawer you know it's usually a little lock box with some insignificant amount of cash. If you need to make small, routine purchase, you're just going to pull it from there rather than having to wait for the for approval and payment process. 

To create a petty cash fund, we're taking it out of our normal cash account. We will credit the cash account and debit the newly-created, Petty Cash account. 

What is an Impress Account? 

An impress account an impress account means we do nothing to it until it's time to replenish. At that time then when it's time to replenish is when we're going to record it in our journal entries. 

Recording Petty Cash Payments?

At the end of the period, we debit all of the expenses paid. I will credit my Petty Cash Account. I use the Cash Short and Over Account to make up any discrepancies between the two. 

Now, let's replenish the account. We debit the petty cash account and credit the cash account by the same amount. 

Related Topics

• What are Internal Controls?– Financial Accounting
• Internal Controls when Accounting for Inventory – Financial Accounting
• What is Liquidity, Cash, and Cash Equivalents? – Financial Accounting
• Internal Controls for Bank Activities – Financial Accounting
• Bank Reconciliation - Explained?