LEARNING MODULE 06

TVET-PROGRAMME TITLE: Accounting and Finance - Level III

MODULE TITLE : Balancing Cash holdings
MODULE CODE : LSA ACF3 M06 0322
NOMINAL DURATION : 80 Hours
MODULE DESCRIPTION : This module covers the performance outcomes, skills and knowledge required
to clear registers, count money, calculate non-cash transactions and reconcile takings and balance cash
holdings.
LEARNING OUTCOMES
At the end of the module the trainee will be able to:
LO1. Maintain accurate cash floats
LO2. Remove receipts from terminal
LO3. Reconcile takings
MODULE CONTENTS:
LO1. Maintain accurate cash floats (30hrs)
1.1. Maintaining Cash in safe box
 What is a safe deposit box?
A safe deposit box is a secure container, usually made of metal, that’s used to store valuables at a bank or
credit union. These boxes are often kept in vaults and can be rented by bank customers for a fee.

 What should go in a safe deposit box:

Antiques, documents and anything that’s difficult or impossible to replace that isn’t needed on demand could
be worth putting in a safe deposit box.

Good things to put in a safe deposit box include:

 Personal papers
 Stamp or coin collections
 Jewelry or rare collectibles
 Important contracts and business papers

Keep in mind that a bank may limit the number of items you can keep in a safe deposit box, based on their
value. The rental agreement will specify restrictions as well, like rules against keeping explosives and illegal
drugs in the box you’re renting.
Safe to Keep Your Cash in a Deposit Safe Box?
Finding a secure means of storing important documents and valuable items is a challenge many people face.
While personal home safes are an increasingly popular choice for many households today, there are still
instances when a deposit safe box should be used to safeguard your possessions.
When it comes to safety deposit boxes, however, many people wonder if they’re an ideal storage option for
cash.
Here, we discuss in detail how a safe deposit box works and whether they’re a good place to store away your
hard-earned money.

What is a deposit safe box?

Deposit safe boxes, or more popularly known as safety deposit boxes or safe deposit boxes, are a secure
storage option typically found in banks and some post offices.

In banks, safe boxes can be found within a vault or inside a larger safe. The boxes themselves can vary in size
and are used by bank customers for the safe storage of valuable and important items such as property titles,
wills, insurance documents, heirlooms, and more.

Storing cash in safe deposit boxes

Deposit boxes can be a good alternative for some people who wish to have cash available in a safe place
without necessarily depositing them in a bank account.

Compared to other common locations of storing cash such as buried in the backyard or under a mattress, a
safety deposit box offers the most security.

Bank limitations

Banks that offer safe deposit boxes have the right to limit the type of items that can be stored. For instance,
you may not be allowed to store firearms or perishable items.

Moreover, your access to the boxes may also be limited to specific times of the day and specific days of the
week.

In some cases, however, banks won't ask what you'll be storing in the safe deposit box. This means that
storing cash and other valuable items is more than fine.

Are items inside safe deposit boxes protected?

In terms of security, the items that you deposit in a safe box are as well protected as the other assets in the
bank. Unlike regular account deposits, however, they are usually not covered by insurance corporations.

This means that if the bank goes bankrupt, burns down, and your cash and other items are destroyed, you
won't be reimbursed for your loss by the key insurance regulators. You can, however, take out insurance for
the valuable items as a separate service to safeguard them against natural disasters.

Other concerns

Banks will charge customers who wish to rent a safe deposit box. Additionally, there are no laws that limit
how much money you can store inside them. If you're considering storing a large sum of money, it may be
best to get legal advice about using deposit boxes for your storage purposes to determine if they're your best
option. When you rent a box, only you or a co-signer has the right to place or remove items from it. Also,
have in mind that you won't be able to access the cash in the safe deposit box for emergencies during bank
holidays or when the bank is closed.

1.2. Recording and proofing regular cash transaction

 How To Manage and Record Cash Receipts

Cash receipts are the written proof that your business has made a sale. One copy of the cash receipt goes to
the customer as proof of buying the product or service, while another copy stays with the business that has
made the sale.

Keeping track of your business’s cash receipts in a timely manner is necessary for efficient financial
management. Proper accounting procedures for cash receipts allow you to maintain adequate records for
financial statement development and income tax preparation, so it’s critical to learn how these receipts work
and how to manage them.

Key Takeaways

 Cash receipts are proof that your business has made a sale.
 Cash receipts include receipts for cash sales, sales paid for by check, and purchases on store credit.
 Cash receipts from cash sales impact the cash account on the balance sheet and the sales account on
the profit and loss statement.
 It’s important to use accounting software and keep the source documents for all your cash receipts as
they are required for tax and financial statement purposes.

What Are Cash Receipts?

Cash receipts are proof that your business has made a sale. A cash receipt should be generated whenever you
receive cash from an external source and record an increase to your cash account on the balance sheet. This
will ensure that your cash flow and ultimately your profit are correct. Cash receipts are also necessary to
minimize theft and stop fraud.

In order to qualify as a cash receipt, certain information must be present on the printed receipt:

 The date of the transaction

 The amount of the transaction
 Description of the service of product
 The quantity sold
 The name or company of the payor.
 Whether the payment was made by cash, check, or some other method
 The signature of the payor.
 An identifying number

Note: A cash receipt is not an invoice. An invoice is a request for payment after goods or services have been
exchanged. A cash receipt, on the other hand, is the record that says payment has been received for goods or
services and the receipt is the proof of purchase for the buyer.

When You Need a Cash Receipt :You need to generate a cash receipt when any of the following payment
methods are used:

 Cash
 Check
 Purchase on store credit

Whenever a cash receipt is generated and you have received one of these three forms of payment, you debit
your cash account in your cash receipts journal and credit your sales on your profit and loss statement.

The physical or electronic owner’s copy of the cash receipt is called a source document in the accounting for
cash receipts. Source documents are the proof that a sale was actually made and payment received. It should
be kept for income tax reporting purposes and to support your financial statements. Source documents are
now most conveniently stored online. If you use bookkeeping or accounting software, you can conveniently
store one copy with the sale. Another copy should be placed in cloud storage as a backup.

Explanation of Column Headings

 Date: The date on which the cash is received for the sale.
 Account Credited: The name of the account credited as a result of the cash sale.
 Reference: The number of the account in the chart of accounts to which the entry belongs.
 Explanation: A brief explanation of the sale.
 Cash Dr: The amount of the cash sale debited to the cash account.
 Sales Discount Dr: The amount of any sales discount offered to the customer.
 Accts Receivable Cr: The column used for credit sales.
 Sales Cr: The offsetting entry to Sale Revenue for this sale.
 Other Accts Cr: Any transaction that yields cash but occurs fewer times per accounting period like
the sale of fixed assets.

What Happens If You Lose Track of Cash Receipts?

If you lose one or more cash sales receipts, it may be difficult to have an accurate balance sheet because the
cash account will be incorrect. An inaccurate balance sheet can lead to underestimation of business expenses
and inflation of profit and revenue. This can be financially damaging to your business due to potential
overspending and overestimating cash flow among other issues. For tax reporting purposes, the situation can
be just as precarious. You need to report all your cash sales to the IRS. If you are missing cash sales receipts,
you may understate your sales on your tax return. If you are audited but your sales are stable from month-to-
month or year-to-year, here are some options:

 Try to estimate your sales. It is safest to overestimate them.

 Present canceled checks, debit/credit card statements, photographs of items, or any applicable emails
as evidence of transactions.
  Seek the counsel of a CPA or tax attorney to avoid any issues with the IRS.

Note: You should always record a cash receipt in accounting software as it comes in and keep the source
documents in a safe, convenient place so they’re easily accessible.

What is Cash Disbursement?

The management of cash transactions is arguably the most important part of accounting. Cash is a highly
valued asset because it's easy to carry and exchange for other goods and services. This makes it highly
desirable. To prevent theft and misuse of funds, cash controls are necessary. Proper cash management
requires the control of cash receipts and cash disbursements, which are the inflows and outflows of cash to a
firm.

Cash disbursements pay for the company's expenses and asset purchases. These are necessary to keep the
firm in operation. Failure to manage cash disbursements properly can cause severe business problems, from
poor vendor relations to unprofitability and eventually bankruptcy. A cash disbursements journal can help a
company keep accurate and organized records, allowing for proper cash management.

How Does Cash Disbursement Work?

A cash disbursement can be recorded in several ways. One way is to debit the account's payable account
related to the purchase and credit the cash account. Accounts payable is a liability account on the balance
sheet, which is decreased with a debit and increased with a credit. The cash account is an asset account on the
balance sheet. It is increased with a debit and decreased with a credit.

Example:

S.N Account Debit Credit

1 Accounts Payable $500
2 Cash $500
An entry can also be made directly to the expense account. Expense accounts are income statement accounts
that are increased with a debit and decreased with a credit. For example, a one-time purchase of door stoppers
for the office might be placed in office supplies. In this situation, expense went up, so it gets debited, and cash
went down, so it gets credited.

S.N Account Debit Credit

1 Sundry Supplies $125
2 Cash $125
Types of Cash Disbursements

Any cash outflow from the firm is a cash disbursement. There are many types of cash disbursements.

 Office supplies expenses like pens, pencils, and erasers for the accounting department.
 Employee payroll expenses like salaries and wages for management and laborers.
 Rental cost for office or warehouse space.
 Leasehold improvements expenses for any changes made to the building structure being leased.
 Utilities expenses like electricity and water.
 Customer refunds for returned and refunded goods.

Part of the cash management process may include managing the timing of payments made to vendors and
other payees. Two ways a company can manage cash outflows are through the use of controlled and delayed
disbursements.

 Controlled disbursements allow a firm to review and schedule payments in a way that maximizes the
interest they receive on the account. This is done by delaying payments.
 Delayed disbursements keep funds in the checking account for as long as possible.

Banks offer these services to businesses with large account balances, where keeping the funds in the account
for a day might make a meaningful difference. An example would be a Fortune 500 company with millions
flowing through its bank accounts daily. The interest for just one day is substantial enough to justify
managing the outflows with delayed, controlled disbursements.

To illustrate, in a company where the cash balance is $500,000 USD a day and the bank pays 3% interest on
the balance, by maintaining this amount in the bank as much as possible, the company would only earn
$41.10 USD a day. Over the course of the year, that amounts to about $15,000. It is not completely
insignificant and is probably not worth actively managing. Keeping the highest balance possible could have
meaningful ramifications for a company whose daily running balance ranges from $25,000,000 to
$75,000,000, If the bank pays this company 5% on its daily balance and the company strives to keep it at
$50,000,000, the daily earnings would amount to $6,849.31 USD. Over the course of the year, this would turn
into roughly $2.5 million dollars, certainly not insignificant. Part of that could become a bonus for the
accounting team that exercised such expert skill at managing cash flows.

Cash Disbursement vs Drawdown

A cash disbursement is a payment made from a cash account. A drawdown is money taken out that decreases
the balance in an account. For example, a payment made from a retirement account disburses funds to the
account owner through a drawdown from the retirement funds. When all disbursements are made, the fund
will have a zero balance.

Example

Positive and negative disbursements are other examples of payments a firm might make. Receiving a refund
for a previous purchase can be recorded as a negative disbursement. It is negative because the firm is
receiving money back that had been disbursed for the purchase of the returned product. Unlike most
disbursements, this actually increases the cash balance. Most items that increase the cash balance are cash
receipts, not disbursements.

A positive disbursement is any purchase made using cash. For example, buying office supplies to replenish
the diminishing stock is a positive disbursement. Normal disbursements are positive, meaning they decrease
the cash balance.

What Is A Cash Receipt?

Cash receipts are records of cash transactions that confirm the sale or purchase of a product or service. Two
copies of the receipt are usually made. For a sale transaction, one copy goes to the customer and another to
the accounting department records.

If the transaction is for the purchase of a good or service by the firm, then it keeps the customer's receipt and
places it in its accounting record files as proof of payment.

For transactions where there is no invoice, the cash receipt may be the only proof of its occurrence.

Characteristics Of A Cash Receipt

A cash receipt serves as back-up documentation for cash transactions recorded in the cash receipts and cash
payments journals. It has the following attributes:

 It can be presented as proof of payment or sale

 It is a legally enforceable document that can be used in a court of law as evidence
 It is issued for the maintenance of accurate, substantiated records
 It can help detect misappropriation of funds by confirming an inappropriate purchase

Contents Of A Cash Receipt

A cash receipt may contain the following information about the transaction:

 Date
 A unique receipt number
 The name of the customer
 The quantity of and list of items purchased
 The cash value for each item
 The total value for entire purchase
 The payment method and amount
 The change due back (for cash payments)
 Customer signature (for credit transactions)

Not all receipts are the same, and some have more information than others. The above is an example of a
comprehensive receipt. A very basic receipt must include at least a unique receipt number, the quantity of and
list of items purchased the cash value for each item, and the total value of the purchase.
How To Account For Cash Receipts?

Cash receipts are accounted for by:

1. Making a sale and issuing a cash receipt for the transaction.

2. Making an entry into the cash receipts journal and an equal and opposite entry into the sales journal.
(or make a journal entry debiting Cash and crediting Sales revenue).
3. Depositing the funds into the bank account associated with the cash account where the transaction was
posted.

Cash Receipt Example

If a retail establishment, like a restaurant, takes in a cash payment for a client that purchased dinner for
$156.00, it will issue a receipt with the details of the transaction and a total balance paid with cash.

1.3. Counting cash at close of business

1.3.1 Investigating and correcting discrepancies

Petty cash reconciliation: how to manage company cash payments

Petty cash reconciliation

Payment reconciliation is the accounting practice of reviewing all transactions and payment records.
Companies need to reconcile all payments to ensure that the payments recorded actually took place, and that
records are accurate and complete.

Thus, petty cash reconciliation is the process of assessing petty cash payments and making sure that company
records are up to date.

Reconciling petty cash can be particularly challenging, given the small and inconsistent nature of these
payments. Many employees believe that petty cash doesn’t need to be tracked closely - that this is simply a
disposable fund.

Of course, accountants don’t see it this way. They need a clear understanding of every transaction, regardless
of the reason for spending or the payment method used. Whether made by credit card, cash, or employee
expense claim, it’s all company money and needs to be treated with care.
Important terms to know

We’ll use a few terms and phrases in this article, so it pays to make them clear first.

 Float: Petty cash boxes usually contain a starting balance so that teams have cash to spend. This is
typically replenished every month or quarter, in what is called an imprest system.
 Disbursements: The slightly technical term for payments made using petty cash. Cash is “disbursed”
to different spenders, and hopefully recorded along the way.
 Log: The petty cash log should show all payments made using petty cash.
 Vouchers: Part of the log system, these show each individual payment. They’re typically filled out by
employees as a sort of purchase order. One voucher = one transaction.
 Keyholder/custodian: Typically only one person will have keys to the petty cash box. This person is
responsible for distributing cash appropriately, and preventing abuse.

How to reconcile petty cash

The actual process of reconciling petty cash is theoretically very straightforward. We’ll get to the potential
challenges in a moment, but here it is in a nutshell:

1. Ascertain the float. What's the starting amount?

2. Count the cash. At the end of a given period, this should be lower than the float amount.
3. Add up the recorded transactions (via vouchers and the log). These should equal the difference
between the float amount and the remaining cash.
4. Categorize disbursements. These will then be assigned to your corresponding expense accounts.
5. Identify and investigate the differences between vouchers and the expected balance. As we’ll see,
this is the biggest sticking point for finance teams, and the main cause of headaches around petty cash.
6. Record transactions in your general ledger. This is part of the typical financial close process.
7. Replenish the float for next month.

So in theory, that’s all there is to it. But as with most company finance processes, theory doesn’t always
match reality.

Problems with petty cash reconciliation

Reconciling any kind of company payment can take longer than desired. The idea is simple: you check your
internal records of what was spent against other sources - usually credit card or bank statements.

But when the two don’t line up, accountants have to find answers. And this can take a lot of precious time.

The big issues come in steps 4 and 5. First, it’s not always clear why a disbursement was made. Vouchers
may be incomplete or vague, and team members may not understand the reasons why expense accounts need
to be precise.

But of course, the biggest issues occur around missing cash or missing documentation. Cash, by its very
nature, is harder to track than card payments. A successful petty cash program relies on a diligent custodian,
and on the rest of the team following the rules.

At best, there’s a high likelihood of human error. And at worst, there’s potential for theft and fraud. Either
way, finance teams tend to spend undue time investigating issues with relatively small payments, instead of
adding value to their companies.

Overcoming these issues

As long as you stick with the physical petty cash box - and cash payments in general - you’ll always have
problems. Whether these are serious or a mild annoyance really depends on your processes.

There are a few simple things you can do to protect yourself from the worst of the worst:

 Reconcile petty cash regularly. Once a month is probably fine, but waiting longer than just makes
the investigation more difficult later on.
 Choose and train your keyholders wisely. These people may even be members of the finance team,
which creates more work but also ensures that the keyholders have the best incentives to do the job
well.
 Keep a digital log, and scan receipts. This places a little burden on the custodian, perhaps, but
reduces the likelihood that receipts go missing or that amounts are in error. It also makes the eventual
reconciliation process much faster, as the data entry has already been done.
 Set a maximum disbursement amount. This doesn’t prevent annoying admin or mistakes, but it at
least mitigates the damage.

But of course, you’re still going to have issues. The petty cash box, while common, is really just a
workaround for employees who don’t have access to company funds. So rather than continue this dance, we
suggest another option.

Employee debit cards: the clean upgrade to petty cash

Employees need to spend from time to time to do their best work. A lucky few are given company credit
cards, which give them direct access to money. But as we’ve written, company credit cards come with their
own issues.

And you can’t replace petty cash with corporate cards for the simple reason that not every employee has
one. Why? Because they’re seen as risky, and they’re too expensive to only use occasionally.

But employee debit cards - like the ones Spendesk offers - don’t have these same drawbacks. We already
wrote a whole post about the differences between these prepaid expense cards and the classic corporate card.
Here’s a quick refresher.
 1.4. Maintaining cash within organization budget.

How to manage a cash budget for your business

What is a cash budget?

A cash budget projects the amount of money coming into and going out of your company in a given period.
This lets finance leaders allocate available cash strategically, based on where they expect to see the best
return.

To better understand what a cash budget actually is, it’s helpful to consider two analogies:

1. Cash budgets are roadmaps

They begin with a beginning cash balance and end with an ending cash balance. In other words, there’s a
start point and an end point. Much like a roadmap, the cash budget will show you how to get to where you
want to go.

Specifically, if you want to have a certain amount of cash left at the end of a given period of time, you need to
map out a course to get there. This course mapped out within your cash budget is determined by estimating
your incoming and outgoing cash flows. We will discuss this in more detail in a moment.

2. Cash budgets are windows

Cash budgets give you a view into how much cash your business has and where that cash will go. Just
because you have a roadmap, doesn’t mean you can actually see what's going on around you. You need a
window to keep an eye on how your roadmap is performing.

As mentioned earlier, CFOs and Finance Directors deal with a tremendous amount of financial statements,
reports, and forecasts on a daily basis. These financial documents may not provide an easy way to see exactly
how much cash your business has and where that cash is intended to go over the next month or next quarter.

Cash budgets clearly show your cash balance at the beginning of a time period, and where your cash balance
will be at the end of the period.

How to prepare a cash budget for your business

There are four main steps to create a cash budget for your business:

1. Define your time period

You need to decide at the outset what period of time your cash budget will cover. Most businesses maintain
budgets monthly, quarterly, and/or annually. Working with a defined time period lets you estimate cash
inflows and outflows.

Without a defined time period, you have no way of knowing what the amounts of cash inflows and outflows
will be.

2. Decide your desired cash position

Your desired cash position is the total amount of cash you want your business to have at the end of your
selected time period. Your desired cash position is also called your ending cash balance. Thinking back to
our roadmap analogy, in order to make a cash budget, you have to know what your destination is. Your
desired cash position is your destination for that time period.

Once you know your destination, you can then move to the third and fourth steps below.

3. Estimate cash inflows

Cash inflows are also called income, sales, and receipts. These are the different types of incoming cash your
business will receive within your defined time period. Examples include cash sales, AR collections, and
miscellaneous income.

When estimating cash inflows, be as realistic as possible. Try not to be overly pessimistic nor overly
optimistic.

4. Estimate cash outflows

Cash outflows are also called expenses and payments. Cash outflows represent different types of expenses
your business will incur during your defined time period. Examples include expenses for raw materials,
payroll, advertising, equipment, and many other types of expenses.

When estimating expenses for your defined time period, keep in mind your desired cash position. Remember,
your desired cash position is where you want to be after all these expenses have been estimated. In order to
meet your desired cash position at the end of the time period, you may need to cut expenses in certain areas
that you are not accustomed to doing.

If you expect a noticeable increase in cash inflows during the time period, you may need to increase your
estimates for certain expenses in order to fulfill these additional sales. For example, if you expect to sell 10%
more product units during the time period, you may need 10% more raw materials to fulfill those additional
product sales.

By defining your time period, deciding your desired cash position, and reconciling your estimated cash
inflows and outflows back to your desired cash position, you now have a completed cash budget!
Where to from here?

Now that you understand what cash budgets are, why they’re important, and how to create them, the next step
is to implement cash budgeting discipline in your business.

One of the main advantages of maintaining cash budgets is the window or visibility they provide into cash
flows. With visibility into company cash flow, you can make better cash management decisions.

Spendesk makes business budgeting and cash flow management simple. CFOs and Finance Directors don't
have the time to monitor cash on a granular level. But with our smart payment methods and built-in budgets,
you get full visibility over company spending in just a glance. Which saves an enormous amount of time and
angst? Whether expenses are paid by card, invoice, or cash, you always know exactly how much budget is
left in real time. A creating and managing cash budget has never been easier.

LO2. Remove receipts from terminal (10hrs)

2.1. Performing terminal balances.
2.1.1. Organization policies and procedures

2.2. Recording terminal information.

 What does it mean to balance the point of sale terminal?

Knowledge required balancing a register or terminal in a retail environment. It involves clearing the register,
counting money, calculating non-cash transactions and reconciling takings.
 What is the purpose of separating cash floats from takings prior to balancing?
The float is the amount of cash you start the day with in your cash drawer. It's the money you need on hand to
give change to customers when they pay in cash. Remove the float before counting your till at the end of a
shift to keep it separate from takings.
 2.3. Following security policies and procedures.
LO3. Reconcile takings (40hrs)
3.1. Collecting and calculating cash and non-cash documents
3.2. Recording records of individual takings