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6 - Cash Management and Controls for Receipts and Disbursements - YouTube
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I'm Larry Walther and this is Prem
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helping calm Chapter six in this module
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we'll look at cash
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management and controls for receipts and
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disbursements thinking first about cash
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management recognize that organizations
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must ensure that sufficient cash is
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always available to meet obligations as
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they come due and second of all that any
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available or excess or idle cash is
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appropriately invested to generate the
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best possible returns to the
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organization now this will often require
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the preparation of a cash budget indeed
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in a later chapter considerable
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attention is given to the preparation of
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a cash budget but for now just recognize
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that it is an overall plan that depicts
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the cash inflows and outflows for a
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stated period of time this enables in
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advance identifying periods of time when
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there may be a cash shortage which could
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otherwise be seen as a signal of
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weakness and even do considerable damage
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to the organization for example payroll
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must be met or employees will not
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continue to work for an organization so
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proper cash management is very important
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now you may think of cash shortage as a
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sign of a weak organization that's not
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always true a very successful company
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may be having significant growth which
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means that additional cash is needed to
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acquire inventories or build up in
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receivables in advance of actually
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collecting cash or even indeed building
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new locations new facilities acquiring
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new equipment all of those things take
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considerable amounts of cash so rapid
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growth can also oftentimes create a cash
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shortage so careful planning is needed
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to sustain a proper growth rate now
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strategies to enhance cash flows can be
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divided into first external strategies
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such as issuing additional shares of
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stock the advantage is that those are
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funds that are not required to be repaid
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however it definitely dilutes the
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existing ownership structure and in many
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cases that's something that the owners
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desire to avoid and so that gives rise
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to consideration of borrowing funds that
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do not entail shareholder dilution but
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those funds must be repaid along with
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interest charges on the funds some
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businesses will maintain a standing line
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of credit standing line of a credit is
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an agreement with a bank or other
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capable lender that says we have
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available to us upon our call or demand
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access to borrow funds now there's
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usually a significant fees for setting
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up a standby bar an agreement or a
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letter
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credit but it's certainly less than the
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interest cost that would be incurred on
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actually borrowing the funds and then
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simply holding those funds so that's a
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very very viable external strategy for
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having access to cash as needed internal
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strategies include accelerating cash
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collections we saw in an earlier chapter
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the idea of offering a cash discount to
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our customers to entice them to pay on a
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timely basis and we might also accept
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credit cards that involve immediate
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receipt or immediate funding of our
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sales from a credit card company or
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accepting electronic payments for
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customers that give us same-day access
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to funds that they transfer to us on the
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in the alternative on the flip side we
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might try to delay cash outflows such as
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paying by check through the mail that
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may buy us a few days utilization of
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funds however recognizing that using the
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float in that way is not acceptable if
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you're using that to cover a cash
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shortage in other words you're not
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permitted to write hot checks many
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people have found themselves in trouble
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for trying that idea for cash management
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now along with internal strategies to
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accelerate cash receipts or deferred
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cash payments we also need to consider
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our cash controls which simply means
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limiting access to our cash providing
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appropriate segregation of duties so
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that the person dispersing the cash is
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not the one perhaps authorizing the
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disbursement and other such
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accountability features when we think
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about cash collections if we have a
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business where we provide goods and
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services to customers they pay us cash
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in hand we need to think about auditing
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those cash tying out the cash to our
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cash drawers and our receipts as well as
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making daily bank deposits of those cash
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amounts the same is true on receipts of
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checks that is sales on credits where we
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later collect a check from the customer
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those checks should be timely recorded
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in the accounting records periodically
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the actual deposits should be prepared
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to the bank compared to the bank deposit
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slip so we need an enhanced control
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structure over those types of items
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that's often evidence through a bank
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reconciliation that we look at in the
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next module finally we want to consider
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controls over disbursements proper
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authorization of payments proper
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separation of duties preparation of bank
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reconciliations perhaps utilization of a
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petty cash system that is another module
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we will discuss as well as use of checks
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for most significant
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payments that occur by the organization
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so there are a number of strategies that
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we can entertain to control cash manage
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cash plan our cash activities make sure
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that that asset remains a solid vibrant
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part of our organization
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