Making regular deposits ensures there is never a large amount of cash on hand. It is also cash control important to reconcile the bank statement with the amounts in the general ledger. To help maintain separation of duties, the person reconciling the bank account and making journal entries would be different from both the cashier and the supervisor. Further, access to the secured elements in the process would be limited, and the business would typically have employee bonding insurance. Mistakes in handling cash can snowball into major accounting errors. Proper controls ensure every dollar is tracked, recorded, and reconciled – helping your finance team maintain clean books and avoid last-minute surprises during audits.

Understanding Key Financial Ratios for Business Analysis

The more that humans are involved, the longer the processing time and the greater the risk of error – Accounting Periods and Methods nobody is perfect, after all! And these errors will doubtless only be detected a few months later and will then take a long time to correct. While cash shortfalls lead to extra costs for a company, poorly placed cash surpluses can be just as problematic. All refunds and voided cash transactions should be supported by documentation stating the reason for the refund or void. The documentation should also include the signature or initials of the person recording the refund or void and the signature or initials of a supervisor responsible for reviewing refunds and voids.

E. Use of Technology and Automated Controls

The inter-bank messaging part is useful for applications like Electronic Funds Transfer (EFT), Real Time Gross settlement System (RTGS), Delivery Versus Payments (DVP), Centralized Funds Management System (CFMS) etc. The banks devise branch wise codes to be placed in last 6 character slot. IFSC is being identified by the RBI as the code to be used for various payment system projects within the country, and it covers all networked branches in the country. Once a cheque has been prepared, it is sent to the creditor by post. Time taken by postal authorities to deliver the cheque to its addressee is known as mailing float. Centralised disbursement system will increase this float and hence more availability of funds in firm’s account.

What are Cash Controls in Business?

Estimation of cash surplus or deficit can Opening Entry be arrived at by preparation of cash planning (budget). Cash management is also important because cash constitutes the smallest portion of the total current assets, even then, considerable time of management is devoted to it. The cash balance of a company is a ‘safety valve’ or shock absorber, protecting the company against short-run fluctuations in funds requirements.

Balance your inventory

Fintech solutions today have automated, tech-first offerings that make banking for businesses easier than ever. Implementing stronger controls within an organization’s financial processes is a critical step towards ensuring the integrity and accuracy of its financial reporting. Resistance to change, cost implications, and the complexity of integrating new systems can all pose significant hurdles. From the perspective of management, the introduction of stringent controls can be seen as a proactive measure to safeguard assets and ensure compliance with regulatory standards. Conversely, employees may view these changes as an additional layer of bureaucracy that complicates their workflow.

• Under this system companies are increasingly demanding customers (larger bills) to pay by wire, or automatic electronic debts.
• The firm may use the technique of playing float for maximizing the availability of funds.
• Some of these solutions are “external” and some are “internal” in nature.
• The documentation should also include the signature or initials of the person recording the refund or void and the signature or initials of a supervisor responsible for reviewing refunds and voids.

In these cases, additional management review and supervision is necessary to ensure that proper internal controls are maintained. The following are guidelines that should be used to identify good internal control procedures for your cash handling procedures. These should be used in conjunction with the self assessments to assist you in preparing good controls. Cash management is not a one-time task—it’s a continuous improvement process.