Arbaminch mechane eyesus

technology and business college

Accounting and Finance Level III

Learning guide
Unit of Competence: Balance Cash Holdings
Module Title: Balancing Cash Holdings
TTLM Code : LSA ACF3 M07 1221
LO1: Maintain accurate cash floats
LO2 Remove receipts from terminal
LO3: Reconcile takings

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Occupational Standard: Accounting and Finance Level III
Unit Title Balance Cash Holdings
Unit Code LSA ACF3 07 1221
Unit Descriptor This unit describes the performance outcomes, skills and knowledge
required to clear registers, count money, calculate non-cash transactions
and reconcile takings and balance cash holdings.

Elements Performance Criteria

1. Maintain accurate
1.1 Cash in safe box is maintained in accordance with organization's
cash floats
policies and procedures
1.2 Regular cash transaction processing and proofing are conducted
within specified timeframes and recorded appropriately with cash
withdrawn and deposited checked for accuracy
1.3 Cash at close of business is counted in accordance with
organization's policies and procedures and discrepancies are
investigated and corrected in order to balance float
1.4 Cash within organization budget is maintained within set limits
2. Remove receipts
2.1 Terminal balances are performed in line with organization's
from terminal
policies and procedures and cash supplied to terminal according to
organization policies and procedures with float separated from
takings prior to balancing procedures
2.2 Terminal information is recorded appropriately after accurate
checking
2.3 Security policies and procedures are followed in the removal and
transportation of cash, cash float and non-cash documents
3. Reconcile takings 3.1 Cash and non-cash documents are correctly counted and
calculated with terminal reading and sum of cash and non-cash
transactions compared appropriately to achieve balance
3.2 Records of individual takings are recorded accurately and in
accordance with organization's policies and procedures

Variable Range
Cash in safe box May include but not limited to :
 notes and coins held in manual cash handling devices
Terminal May include but not limited to :
 a range of manual or electronic equipment used for the deposit and
withdrawal of cash and non-cash documents
Organisation policies neatness and tidiness of cash in safe box
and procedures terminal balancing and security
include policies and time frames for:
procedures relating  processing transactions
to:  periodic and end of day balances
 recording of discrepancies
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Security policies and May include but not limited to :
procedures organizational policies and procedures that specifically refer to the
securing and safe handling and transport of money and non-cash
transactions
Non-cash documents May include but not limited to :
or transactions may cheques
advance cards/ suspense payment voucher
others
Accurate recording of duplicate or triplicate copies
information may permanent hard copy
require recording on: preformed

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LO1:Maintainaccuratecashfloats
Cashfloat
It is cash put into the cash box at the beginning of the day or week to allow change to be
giventocustomers.

It also defines as money a retailer keeps to give change to customers. Such money is kept in
arange of banknote denominations and coins. Departments in an organization may also set up
cashfloat accounts to avail change, as University of Toronto does. To handle the change
problem,
theinstitutionutilizesthecashfloatprovisiontokeeptrackofcashmovementfromitsaccounttothe
requestingdepartment

CashFloatAccounts
Definition:Abankaccount specificallysetup by abusiness
ownertofloatmoneythroughfromBusinessA to enhancetheperceived valueof Business B .

Abusinessseller withalotofmoney--asidefromthat generatedbythebusinessthey'retryingtosell--

may float this money through the operation to make it look like sales. This increases
theapparentvalue ofthe business forsaleand, with it, thepurchaseprice.

Cash floating is usually easiest to conceal if a seller has two different businesses. Money will
befloatedfrom onebusiness (so thereareno taxespaid on theoperation ofthatbusiness) to
theonebeingsold so thattaxes arepaidon that operationonly. This isdonein severalways.

Floating cash through bank accounts makes it appear as if Business B--the second business--
istaking in money. It can have great impact on the sale price of certain retail businesses, such
asthosewherealot ofcashchangeshands.Thisisparticularlytrueifthe
retailbusinessisonewithrelativelylow-priced items.

Anotheroption isto haveBusiness Apayingforinvoices cominginforBusiness B,or

tofunnelreceivables from Business A--the more profitable business--into Business B--the less
profitableone,thus makingabusiness that doesn't do muchvolumelook good on paper.

In labor-intensive businesses, a seller will take a low salary from Business B or put some of
theemployeesfromBusinessBonthepayrollofBusinessA;therefore,thepayrollexpenseimplicitin the
business for sale (Business B) isn't reflected in the profit and loss statement (P&L).
Theseemingly low labor costs in a labor-intensive business can make it extremely attractive to
anunwarybuyer. Yet high labor costs maybethe veryreason that thebusinessis beingsold.
Remembertheadage,caveatemptor?Buyerbewares! Findoutwhetherthesellerofanybusiness

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you want to buy owns any other businesses, and if so, what kind of businesses they
are.Investigatethefinancialrecordswithacriticaleyetomakesurenocashisbeingfloated.

Whyiscashflowimportant?
Positivecash flowis astrongsign abusiness isingoodfinancial health.Companies relyoncashto pay
bills, protect against risks of negative business cycles and reduce reliance on debt
forpayments.Cash flow brings financial and operational stabilitytoan organization
Companies often take on debt to purchase buildings, equipment, assets and inventory used
tostartand operateabusiness. Apositivecashflow allows thecompanytomeet its near-
termdebtobligations to avoid late payments and loan defaults.When a company generates cash
to fundpurchases, it minimizes its ongoing reliance on debt financing. Being debt-strapped is
arestrictionon future cashflow.

Positive cash flow also impacts a company's ability to grow. When a company only
generatesenough cash to meet its debt and expense obligations, it is difficult to invest in growth
initiatives.Withouttheabilitytogeneratenew revenuesources andcustomers,
acompanycanbecomestale.Cash flow also provides a safety net so company leaders can operate
the business withoutconstantfear ofdebt pressureand potential bankruptcy.

HowtoManageaCashFloat
Adequatecashflowtopaysuppliers, employeesandcreditorsiscriticalto
thesuccessofyourbusiness. The way to ensure sufficient cash flow is to properly manage your
business's cash,which requires you to optimize the collection and disbursement of cash.
Managing yourcompany’scashfloats playsan important cashmanagement role.

CashFloatDefined
In general, cash float refers to the difference between the cash balance recorded in
youraccounting system's cash account and the amount of cash showing in your company's
bankaccount balances. Disbursement float occurs when you write a check and the recipient has
notyet cashedthecheck.Collectionfloatoccurs
whenyoudepositacheckbutthebankhasnotyetcreditedyour account. Thenet floatis
thesumofdisbursementand collectionfloats.

 BankAccountFloat
Disbursement float gives you additional monies in your account for one or more days,
whilecollectionfloatremoves themoneyfromyour bankaccount foroneormoredays.To
effectivelymanage float, you must increase your disbursement float and decrease your collection
float. Inotherwords,youmust slow downdisbursementsand speedupcollections.

 ManageDisbursementFloat
For disbursements, opt to mail checks to vendors whenever possible. Although lenders
andcertain creditors -- for example, utility companies and your company's landlord -- assess
latechargesif theydo notreceiveyourcheck byacertaintime, mostvendors donot. Youwill have
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the mailing time, the processing time and the time it takes for the bank to actually clear
thebankingsystemandtransferfundsoutofyour business'sbankaccount.Evenif youmailchecksfor
receipt one or two days before the due date, the receiver still needs to process the check
anddeposit it. This gives you much more float than you would have if you paid via electronic
fundstransferor direct transfer.

 ManageCollectionFloat
To speed up your collection float, you must compress the time between receiving cash
andchecks and depositing them in the bank. To do this, you can designate a post office box for
allinvoice payments. This reduces the likelihood that checks get lost in the mail on the way to
youroffice. In addition,you
cansetupremotedepositwithyourbank.Thiswillenableyoutodepositchecksonthedaytheycome
in,assoon asyourbookkeeper orpaymentclerk recordsthe checksin your accounting system.
Alternatively, for customers who pay the same amount each month,you can provide payment
slips that allow them to direct-deposit their payment into yourcompany'schecking account.

WhatIsBusinessCashFlow?
Profit alone is not always enough to sustain a business. A company must also have enough
cashonhand to payitsbills.Abettergaugeofabusiness’sfinancial healthis its cashflow,
themoneyflowing in and out of the business from sales, expenses, investments, debts collected
and creditextended.Identifyingacompany’scashflowcan help
youpredictthecompany’sfuturesuccess.

Definition

Cash flow is composed of cash inflows and outflows based on three types of activities:
operatingactivities, investing activities and financing activities. Cash outflows are monies paid
out of thebusiness. Cash inflows are monies paid in. A cash-flow statement only considers
monies actuallytransferred and does not include assets or liabilities that do not result in an
exchange of money(such as those extended on credit). The Securities and Exchange Commission
requires all publiccompanies to produceaquarterlycash-flowstatement.

OperatingActivities

Operating activities include cash used for the company’s day-to-day operations, such as
theproduction, distribution and sale of goods. Operating activities will likely comprise the
largestsource of business income. Activities may include cash received from the sale of goods
orservices; cash received from royalties, fees and commission; cash paid to suppliers for
materials;cashspentonadvertising;cashpaidtoemployeesorontheirbehalf;andinterestpaidand
earnedon loans.

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 InvestingActivities

Investing activities include cash flow from activities intended to generate future income.
Thesemay include cash spent to purchase equipment, land or buildings; cash paid to acquire
equity;cash received from the sale of equity; or cash advances and loans made to suppliers
orcustomers. Investing activities may result in a negative cash flow, but this situation is not
alwayscausefor concern,as heavyinvestmentmaytranslateto greater futurecashflow.

FinancingActivities

Cash flow from financing activities measures the flow of cash from the business financers,
suchas banks and shareholders. Financing includes cash received from investors, cash paid
toinvestors,cashreceived fromissuingsharesanddebt,dividendspaid,sharerepurchasesand
cashpaidforbonds, notes andmortgages.

Importance

Executives may examine a company’s cash-flow statement to determine whether the

businesscan afford to expand. Stockholders will use it to determine the likelihood of a company
beingable to pay out dividends. Suppliers considering whether to extend credit will want to
know thatthe business has the cash necessary to repay its debts. Investors may use it to predict
futuregrowth.Althoughthe cash-flowstatementcanprovide greatinsightintothefinancialhealthof
acompany, the balance sheet and income statement are equally important tools to help gauge
thebusiness’ssuccess.

HowtoMaintainCashFlowinaBusiness
Cash flow in a business refers to the actual cash that comes into the business and the cash
thatexits the business. Cash inflows are payments received from customers and clients for
productsand services, interest payments and other receivables. Cash outflows include anything
thatrequiresthe businessto payother thanon creditsuch asleases, taxes, payrolland
otherbusinessexpenses. Even though the business ’ income statement may appear
healthy, if thebusinessis not managing cash flowwell, the business could bein real trouble.

 Step1

Negotiate terms with vendors. If your clients are required to pay within 30 days, your
termswith your vendors should be similar. If vendor payments are required on receipt when
clientpayments are required within thirty days, there are bound to be cash flow problems.
Always paywithinthevendororsupplierpaymenttermsbutdonotpayearly.If
thevendorrequirespaymentwithin 30 days, do not pay when you first receive the invoice. Take
advantage of the 30-daygraceperiod.

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  Step2

Offer incentives for prompt payment. If customers receive products or services before
theyhave paid, offer a small discount or bonus if the customer pays within the first 10 days
ofreceivingtheinvoice. Thiscreates urgencyon the part ofthe customerto
paythebillquickly.Inaddition, the small discount offered is often less than it would take to
manage the receivablesaccountandfollow up for payment at laterdates.

 Step3

Setupabusinesslineofcreditwithyourbankwhenyourbusinessifdoingwellfinancially.When
your business falls on hard times and you need money instantly, the bank will be lesslikely to
want to extend credit to your business. By securing the line of credit when times aregood, you
are providing a safety net for the future and making it easier to obtain the line ofcredit.

 Step4

Request deposits for custom orders for merchandise that you will not be able to resell
toothers. If you are custom embroidering 100 shirts for a local business, require payment
upfrontbefore the customization can be completed. This ensures you don’t end up with
100 shirtsthatcannot be usedandanegativecash flow from the transaction.

 Step5

Move inventory. When your inventory is sitting in the store, you are not improving cash
flow.Monitor your inventory turnover levels to ensure that product is continually moving out of
yourstore. If a product line is not performing well, speak to the supplier about buying it back
orsubstituting a different product line. If all else fails, discount the product to move it out the
doorsoa higher profitingitemcan bedisplayed inits place.

CashFlowProblemsinaBusiness
Adequate cashflowisessentialtokeepingabusiness
afloat,buta2010DiscoverSmallBusinessWatchsurveyfoundthat50 percentof small businessowners
claimed cashflowproblems.
Entrepreneursoftenconsiderbandagingtheir cashflowproblemswithtemporarycashinfusions,but a
business ultimately needs to fix structural problems in their supply chain to show positivegains.

 Identification

Cashflowproblems meanabusiness spendsmoremoneythanit earns. Ifyou

spend$4,000onrent,supplies andpayrollthis month, forexample,but onlytakein $3,500in
salesyouhavea

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cash flow of negative $500. You also have projected cash flow problems. If your
expectedexpensesoutpaceanticipatedsales,you haveaprojected cashflow problem.

 Causes

Most businesses that have cash flow problems do so because they fail to look at their
financialstatements until problems become too big to handle. Even a company that makes a
profit canhaveanegativecashflow becauseof thelagtimeshippingout products,when
thecustomerpaysand the postingdateof thefunds.

 Effects

Poor cash management could end up putting a profitable company out of business. Without
cashon hand, a business may not be able to invest in assets that it needs, such as new equipment
andinventory.Profits are good forabusiness, butareworth nothingif cashis not comingin.

You may have to look to alternative loans with undesirable interest rates that cost more than
atraditionalloan to make up for cash shortfalls.

 TemporarySolution

New businesses can expect some cash flow problems because they have yet to build up
thereserves needed to cover receivables owed to them. Consider taking out a loan against
businessassets--thistypeofloancostsmorebecausebusinesses thatneed secured
loansaretypicallytheclosestto failure.

Youcansellassetsandthenleasethem.Lease agreementshaveyou
payforthedepreciationoftheitems,whereas purchasingoutright islikepre-payingfor thelifetime
useof theequipment.

Ifyouhavesignificantoutstandingreceivables,somecompaniesspecializeinbuyingtheseforlesstha
n theyare worth,but giveyou cash inhand.

 Solution

Ultimately,youmustgetproductstocustomersfasterifyouwanttoimproveyourcash flow.

Alwaysdepositchecks assoon aspossible. Requestcustomers payin cashif possibleoratleastwith a

credit card. Offer a discount if a customer pays an order faster than the standard 30
days,suggestsEntrepreneur.com.

Forsuppliersandvendors,keepa goodrelationshipwiththemincaseyoueverneedtoextendeda
payment deadline. If you usually pay early, consider sending in payment on the last daypossible.

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LO2 Removereceiptsfromterminal

Cashpayment
A form of liquid funds given by a consumer to a provider of goods or services as
compensationfor receiving those products. In most domestic business transactions, a cash
payment willtypically be made in the currency of the country where the transaction takes place,
either in papercurrency,in coins or in an appropriatecombination.

NoncashPayments
Payments made without the use of cash by transferring certain sums from the accounts ofthe
payer to the account of the creditor (in a bank or savings office) or by offsetting mutualclaims.
Noncash payments are characteristic of an economy with developed commodityand monetary
relationsandare acomponent of unified monetaryturnover,whichalsoincludesthecirculation
ofcash.

Under capitalism the development of credit and of banking serves as the economic basis
ofnoncash payments. Because production and goods turnover grow more rapidly than themining
of preciousmetals, agap arises betweentheneeds ofthegrowinggoods turnoverforfull-
value money and its availability in circulation; credit means of circulation and paymentappear
(bill of exchange, banknote, and check), which aid in overcoming the narrowness ofthe metal
base of monetary circulation and in creating the economic prerequisites for thedevelopment of a
systemof noncash payments. These means are realized with the aid of(1) bills of exchange and
checks,whichreplacefull-
value money in circulation; (2) noncashtransfers to the current accounts of clients in banks and
savings offices; (3) a system ofcorrespondence accounts between various banks; and (4)
accounting of mutual claimsthrough clearinghouses. Noncash payments speed up the turnover of
capital, reduce thecosts of circulation, and ultimately promote the expansion of the scale of
capitalistproduction and increase profits. In the epoch of imperialism noncash payments
aremonopolized by the largest banks and serve as one of the means of bank capital mergingwith
industrial capital. In some capitalist countries certain peculiarities and distinctivefeatures, which
arise from historical and economic causes, exist in the organization ofnoncash payments. It was
in London, in 1773, that the first clearinghouse was organized;noncash payments came into wide
use with the aid of drafts and checks, as well as bymeans of clearing. In the USA, where banks
were forbidden for a long time to have branchesinside the country, correspondence accounts and
clearing have been developed, but theoverwhelming proportion of all payments are made by
check. In France, the FederalRepublic of Germany, and a number of other countries where there
are many deposits frommedium-andsmall-
scaleowners,noncashpayments aremadechieflythrougha system ofendorsementpayments.

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Noncash payments in prerevolutionary Russia began to be developed intensively at the endof
the19th century and especially at the beginning of the 20th century. By 1917 noncashpayments,
includingclearingand intrabankpayments, had developedconsiderably.

Undersocialismnoncash paymentsperformimportantfunctionsinmobilizingtemporarilyfreemoney
and in concentrating it in credit institutions as a resource for providing credit tothe
nationaleconomy. The state also utilizes noncash payments as one of the tools ofcontrol over the
economic activity of enterprises and organizations. In the USSR, dependingon the volume and
period ofmoney coming into the account of an enterprise, the mostimportant indexes of its
activity can bedetermined—
sales and profits. These indexes playan important role in the system of economic incentives
under the economic reform that hasbeen carried out since 1965. The basis of the system of
noncash paymentsthat nowexistsin the Soviet Union was established in1930-
32, when, during the credit reform, commercialcredit was abolished and direct bank credit was
introduced.Short
term credit and paymentturnover were concentrated in the Gosbank (State Bank) of the USSR,
which has made itthe unified payment center of the country. The Gosbank carries out all noncash
payments,
establishes the forms of payments, determines the procedure and deadlines of payment
fordocuments, and so forth. The state regulates (by legislation of the USSR) the rules
formonetary turnover and for providing credit in the economy. All enterprises, organizations,and
institutions are required to keep their money in a bank and to carry out mutualpayments on a
noncash basis (except payments of small sums, which are made in cash).A document made out
by one enterprise and addressed to another enterprise cannot beused to settle accounts with a
third; there is no nonbank circulation of payment documents.Commercial credit is prohibited; the
issue of goods or the rendering of services by oneenterprise to another on a credit basis, if the
system of advancing credit doesnot provide forit, is not permitted. Each payment document is
paid for in accordance with the groups ofpayment priorities established by legislation. Under the
first group are wage payments andpayments equivalent to wages (pensions and stipends) and
then payments for documentson settling accounts with the budget. Under the second group are
payments for goods,materials, and services and the completion of accounting of mutual claims;
under the thirdgroup, payments of depreciation deductions and profits for the financing of
capitalinvestments and capital repairs; under thefourth,paymentsto clearbankloansandguarantees;
andunderthe fifth,all otherpayments.

Noncash payments subdivide into intercity and intracity (local) noncash payments. Inintercity
payments the acceptance form of payments is dominant, while in intracitypayments the widest
use is made of payment commissions, checks, and plan payments.Noncash payments are also
made throughthesystemofsavingsoffices. Trade-
union andpublic organizations, rural budget institutions, kolkhozes, schools, and polyclinics
cankeeptheirmoneyin savings banksandmakenoncashpayments throughthem.On anoncashbasis

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, on commission from their depositors, savings banks also make payments for anapartment, gas,
telephone,andelectricity,as wellaspayments on taxes, insurance, andsoforth.

In the other socialist countries the overwhelming majority of payments by enterprises aremade
through banks by means of noncash payments. The basic forms of noncashpayments are the
acceptance form with the collection on payment documents, the letter ofcredit, payments by
means of commissions and checks, and planpayments.

DocumentationforCashandNoncashCharitableContributions
CashContributionstoCharities

Be advised that the Internal Revenue Service has tightened its requirements for the
deductibilityof cash and noncash contributions to charities, including churches. The taxpayer is
required topossess written proof of the contribution regardless of its amount. No longer can the
taxpayermerely enter on lines 16 and 17 under “Gifts to Charity” arbitrary amounts of hundreds
orthousands of dollars. Too often have I witnessed taxpayers submitting high guesstimates—if
notimaginary gifts—on tax returns, believing that the IRS would never challenge the legitimacy
oramounts of these deductions.For the taxpayer to continue to do so today in light of the
IRS'srecent posture toward charitable contributionswould not merely be careless, but
foolishlyreckless,flagging an auditand resultinginsignificant penalties andother expenses.

Thecharitablecashtaxdeduction mustbe supported bywritten evidenceshowingthe nameofthe

charitable organization, the date of the contribution, and the amount. Written
evidenceacceptableto theInternalRevenueServiceincludes thefollowing:

1. Canceledchecks

2. Bankor creditunionstatements

3. Creditcardstatements

4. Receiptsfromthecharitableorganizations

5. Paystubs, Form W-2, orotherdocuments furnished byanemployer

6. Pledgecards

However, each of these documents must state the organization’s name as well as the dates
andamounts of the contribution, although one statement of acknowledgment from the
charitycontaining all of the required information may meet the substantiation requirements. In
addition,a charitable organization is required to provide a written disclosure to a donor who
receivesgoodsorservicesinexchangefor asinglepaymentinexcess of$75.Furthermore,youmust

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obtain all documentation supporting your cash contributions on or before the earlier of the
dateyou file your return for the year you make the contribution, or the due date, including
extensions,forfilingthe taxreturn.

NoncashContributionstoCharities

For a contribution not made in cash, the records you must keep depend on the amount of
allsimilaritems ofpropertydonatedto anycharitableorganization duringtheyear. Foramountsofless
than $250, a receipt, letter, or other written acknowledgment from the charity must
beobtainedshowing,

1. the name ofthecharity

2. thelocation andaddressofthe charity

3. adescriptionin sufficientdetail ofthepropertycontributed.

In additiontotheaboveinformation,yourrecordsmustalsoincludethefollowing:

1. theoriginalcostor basisoftheproperty

2. thefair market valueof thepropertyat thetime of donation

3. themethod ofderivingtheproperty’sfair marketvalue

a. appraisal

b. thriftshop value

c. comparablesales

d. catalog

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Access to the internet provides comparable values of properties in good or better
condition.Simply perform a search on google: ebay and other sites have comparable values on a
host ofitems; and most charities provide a value guide of donated clothing and household items.
If adonation is left at a charity’s unattended drop site, the obtainment of a written receipt is
deemedimpractical and thus not required by the IRS. However, you still are required to provide a
writtenrecordof thedonation, includingthe impracticalityofobtainingareceipt,its cost andfair
marketvalue,and the method used to determinethat value.

Adeduction foranyitemwith minimal monetaryvalue maybedenied. Moreover, nodeductionis

allowed for clothing and household items that are not in good condition or better, unless it isfor
more than $500 and a qualified appraisal of the clothing or item is included with your
taxreturn.Householditemsincludefurniture andfurnishings,electronics,appliances,linens,etc.
Theydonotinclude food,paintingsandother objectsofart,antiques, jewelryandgems,
andcollections.Special rulesapplyto food inventory,capitalassets, and such.

Fornoncashcontributions ofat least$250but notmorethan$500, inadditionto therequired

information mentioned above, the charity’s written acknowledgment must also include
whetheror not the qualified organization gave you any goods or services as a result of your
contribution(other than certain token items and membership benefits), and a description and
good faithestimate of the value of any goods or services. If the only benefit received was an
intangiblereligious benefit (such as admission to a religious ceremony) that generally is not sold
in acommercial transaction outside the donatives context, the acknowledgment must say so and
doesnotneed to describeor estimatethe value ofthe benefit.

Fornoncashcontributionsover$500butnotover $5,000,inadditiontotheaboveinformation,the date

of acquisition or completion of the property, the means of acquisition (e.g.,
purchase,gift,inheritance,exchange, etc.),and anyadjustments tobasismust alsobe
providedbyyou.

Fornoncashcontributionsover$5,000,inadditiontoalloftheabove,generally,youmustalsoobtainaq
ualifiedwrittenappraisalof thedonatedpropertyfromaqualifiedappraiser.

GuidanceonCashHandlingProcedures
Thefollowingprocedurehasbeen documentedtoactasa guide forthe control,receipt
andbanking of miscellaneous cash.It is expected that individual areas will develop their
owndetailedproceduresencompassingtheguidelinesasbelow.

a) BankSecurity

 Cash transactions should only be dealt with by staff members who are authorised
toundertakesuchresponsibilitiesandaregularreviewoftheseauthorisedstaffmembers
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 should be performed by senior management in each area.Each department
shouldcentralisethe collectionofcash preferably,onlytwo peoplewithinthedepartment
shouldberesponsible for handlingcash.

 All cash collected / cash and petty cash floats should be held securely, either in a till, or in
alocked cash box at all times. In the latter case, the cashbox should be kept out of sight at
alltimes in a locked cabinet or drawer. Any cash amounts over £500 must be held in a safe
anddetailsof thesafepassedtoInsuranceDept.

 Cashshould never beleft unattended, for anyperiod oftime.

 Wheredepartmentsusetillsto collectandstorecashthroughout theday,

thenfurthermoredetailed guidance on cash handling should be documented and maintained
by eachdepartmentwhich
containstheminimuminternalcontrolscontainedwithinthisprocedure.

 Undernocircumstancesshouldcashbeusedforpayingforstaffadvances,reimbursementsofstaff
personal expensesormileageclaims,wagesor salariesor foreigncurrencies.

 Nocashincomeshould beaddedto pettycashfloat balancesotherthan

byreplenishmentfromFinanceOffice.

 Keys to the till, cashbox, or safe, should be given to a designated person, who should
keepthekeys secureandensurethat theyarenot leftunsecured in
theofficeovernight.Sensibleprecautions should be taken to ensure that any room in which
cash is regularly stored islockedwhen unoccupied.

 Wherecash is beingcounted bystaff, thisshould bedoneout of sight.

b) ReceiptofCash

 Cashhandlingproceduresareundertaken byat leasttwo people.

 Areceiptmust beissuedforallcashreceived andacopyretained.Thereceiptshould

beprocessedthrough theCash Register, or issued manuallyandshall show

 Datereceived

 Nameofthepayee

 Amountreceived

 Whatthepayment wasfor

 Typeofpaymentreceivediecash,cheque,postal order,creditcard,debitcard
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  Uniquereceiptnumber

c) RecordingCashSales

All cash sales must be recorded within Agresso via the Agresso Web.A nominated member
ofstaff for each department will record income received within their department on a daily
basis.Daily cash sales will be matched to the bank reconciliation by the Cash Section within
theFinance Office.Agresso will then automatically reconcile the income recorded via the
CashSalesto themoneyreceivedin theUniversityof Glasgow bank accounts.Anydiscrepancies
willbeinvestigated bythe Cash Section.

Forfurtherinformationon thecashsalesprocess
pleaserefertotheAgressousermanualforsalesorders.

All cash registers should be emptied daily with cash takings matched to till reports
anddiscrepanciesinvestigatedwithasupervisor/managerconfirming(asevidencedbytheirsignaturean
d this evidence kept on file) daily banking is consistent with till readings. Cash should
bestoredsecurelyin a safeuntilbanked.All bankingshould becompletedwithout delay.

d) CashTransportation Guidelines

Cash collection must be documented by location/site and the specific collection point must
beidentified together with the days and approximate times.If cash is not collected the
followingcriteria
applyforbankingcash(inlinewiththeUniversity’sinsurancepolicyrequirements)

 Upto £3,000-1 person

 Between£3,001 and£6,000 -2 persons

 Between£6,001 and£10,000-3 persons

 Over£10,000-Professional SecurityCompany

A member of staff not involved in the cash collection process should be made responsible
forensuringthat all cash banked appears timeouslyand accuratelyin therelevantAgresso project.

The overriding principle is that, in order to achieve an adequate separation of duties and
toreduce risk,it isnecessaryto ensurethatno oneindividualis responsibleforall activitiesinthisarea;
that is: cash collection, cash reconciliation, delivery to Cash Office or bank and review
ofprojectstatements.

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 LO3: Reconciletakings

Reconciliation

Definition:

Reconciliation is the process of comparing transactions and activity to

supportingdocumentation.Further, reconciliation involves resolvinganydiscrepanciesthat
mayhavebeendiscovered.

Purpose:

Theprocessof reconciliationensures theaccuracyandvalidityof

financialinformation.Also,aproper reconciliation process ensures that unauthorized changes
have not occurred totransactionsduringprocessing.

ConceptsandBestPractices

KeyConcept BestPractice

For each type of activity consider documenting the

Accuracyofactivity:
Agoodinternalcontrolsystemprovidesame
chanism to verify that transactions
andactivity are for the correct purpose
andamount,and allowable.
particularinformation from source documents that is to be
compared tothe appropriate report. This assists to ensure that
transactionsare valid and are correct in purpose. (example:
determine thatfortravel
reimbursementsourcedocuments,thetravelername,destination,
purpose of the trip, etc. will be matched to
themonthlyfinancialreport)

Ensure that transactions have been properly

authorized.Especially, if the source documents are paper based,
review forpotential changes to the document between approval
andprocessingof transactions.

Ensurethatalltransactionsareallowable.
Errorcorrection:
Verifythe recordingof transactionsin atimelymanner.
Reviewsource documents to assure they are processed and
Errorsanddiscrepancies,intentionalorun
posted in atimelymannerbytheprocessingdepartment.If not,
intentional,should bedetected,
follow up
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investigated and resolved in a withtheappropriate centralofficeorprocessingdepartment.
timelyfashion.
Documentaplanfortheresearchandcorrectionoferrorsordiscre
panciesofeachtypeof transactionoractivity.
Communicatetheseprocessesandprocedureswiththeapp
ropriatestaff.

Establishexpectationsfortimelinessoferrorcorrection.

Matchingtothesource:

The oversight of any transaction

isstrengthened by the process of
matchingsource documentation of the
transaction
totheappropriatereportingdocumentationor
reportingtool.
Documentingtheprocessandcompletion:
Reconciliationprocessesaremosteffectivew
hentheyareconsistentand thorough.
Employees involved in the
reconciliationprocessshouldbeknowledgea
bleandclearontheirresponsibilitiesand
expectations.
It should be clear to an external
reviewerwhenareconciliationhasbeencom
pleted.
SeeBudgetActivityReconciliation Process Guidelines
Be consistent with reconciliation processes. Changing
thereconciliationprocessoftenleadstoundiscoveredinaccuracies
andpotential fraud.
Reconciliationshouldbedocumentedclearlytoverifythatarevie
whas been done.
The reconciliation process and procedures should
bedocumentedclearlyandcommunicated.Considerdocumenting:
The steps in the
processWhoperformsea
chstep
Expectationsregardingtimeliness
Amechanismforprovidingproofthatallactivityhasbeenreviewed
and reconciled
Aprocedurefor errorcorrection.

Whatismeantbyreconcilinganaccount?
Reconciling an account often means proving or documenting that an account balance is
correct.For example, we reconcile the balance in the general ledger account Cash in Checking to
thebalanceshownonthe bankstatement.Theobjectiveisto reportthe correct amountinthegeneral
18
19
ledgeraccountCashinChecking.Youwilloftenneedtoadjustthe generalledger
account balance for items appearing on the bank statement that were not entered in the
generalledgeraccount.

I recall being asked to reconcile the general ledger account Freight Payable. What I needed to
dowas provide documentation that the balance in Freight Payable was proper. I proceeded to
lookat the shipments of recent sales and then determined how much we would be obligated to
pay forthe freight on those sales. We then adjusted the balance inFreight Payable to my
documentedamount. This reconciliation was done to have the correct account balance and to
provide theoutsideauditors with documentation which couldeasilybereviewed.

Ialso reconciled thebalancein Utilities Payablebycomputingthe dailycost of each utilitythatthe

company used. The cost per day was then multiplied by the number of days since the lastmeter
reading date shown on the utility bills already entered in our accounting system. We
thenadjustedthe Utilities Payableaccount balancetobeequal tothedocumented amount.

ReconciliationofBalanceSheetAccounts

Reconciliation is the process of comparing information that exists in two systems or

locations,analyzing differences and making corrections so that the information is accurate,
complete andconsistent in both locations. Balance sheet accounts must be reconciled on a
periodic and timelybasis to verify that all items were correctly posted to the account. All funds
within the balancesheet account must be included in the reconciliation unless previous
arrangements have beenmade. Without performing reconciliations, inaccurate recording of
transactions may occur thatwouldresult in incorrect reportingand couldimpact resources.

The Office of the Controller will maintain a master list of balance sheet account
assignments.Thislistwillshowtheunitandpersonresponsible forcompleting
individualaccountanalysisona monthly basis, where the supporting files (system and documents)
are located and the periodthrough which accounts have been reviewed. As new accounts are set
up, the Office of theControllerwill assign anindividual tocomplete therelated periodicanalysis.

 PreparingRequired Documentation
 CompletingtheAnalysis
 Reviewingthe Analysis
 RetainingDocumentation

PreparingRequiredDocumentation

Prepareaseparate
workpaperforeachbalancesheetaccounttodocumentthereconciliation.Thework paper must
contain the followinginformation:

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a. Thebalancesheet accountnumberand accountname.

b. Astatementof purpose fortheaccount.

c. Abriefdescriptionof thedebit/creditactivitythat normallyprocesses

throughtheaccount.

d. Theaccountingperiodfor whichtheanalysisis beingcompleted.

e. Keyasto thepresentation intheaccount(e.g.,is creditshown

asapositiveornegativenumber).

f. Activityfortheperiod-presentationwill bedeterminedbased on
thenatureoftheaccount and thevolumeofactivitythat is recorded monthlyin
thataccount.

g. Substantiationoftheaccount'sendingbalancethroughreviewofunderlyingsupportingdocu
mentation.

h. Thename and phonenumberofindividual preparingthereconciliation.

i. Thedatethe reconciliationwascompleted.

j. Alistofcontactnamesandphonenumbers/emailaddresses
forquestionsrelatingtotheaccount.

k. Keepaccountinformationupdatedfor changes inprocessingandotherinformation.

CompletingtheAnalysis

Performthefollowingactivitiesaftereachmonthendclose:

a. Confirmtheopeningbalancewithprevious workpapers, orthatbalancewaszero ifthisisa

new account.

b. Reviewthe activityposted to theaccount to ensurethatdetailitems are:

1. Properlyclassifiedtothe account,

2. AuthorizedinaccordancewithUniversitypolicies, Stateand
Federallawsandregulations,andspecific sponsorordonorrequirements
orrestrictions, and

3. Withintheguidelinesofthestated purposeoftheaccount.

c. Ensurethatallexpected charges,receiptsorother activityappearsin the account.

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d. Takeappropriate actionstorecordnecessaryadjustments.

e. Takeimmediateactiontoresolveerrorsordiscrepanciesnotedduringthe
reconciliationprocessandfollow up to ensurethat errorsare corrected.

f. Maintaincopies ofsupportingdocumentation for activityprocessedfortheaccount.

g. Confirmtheendingbalanceperthereconciliationagreestothe generalledgerbalance.

ReviewingtheAnalysis

Submittheaccountanalysisattheendofeachquarterfor reviewtothe
OfficeoftheController.Thereviewer verifies that:

a. Analysisincludesallofthefundswithinthisbalancesheetaccount.

b. Endingbalancesagreestothegeneralledger.

c. Endingbalancesaresubstantiatedwith supportingdocuments.

d. Allactivityis appropriateandreasonable.

e. Adjustmentsorcorrections,ifnecessary,havebeeninitiated.

f. Theaccount(fund andreportingcategory) hasbeenassessed fortheneed toretain.

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