Cash Management and Controls

💰 Cash Management and Controls

Your Money’s Safety Net: How Businesses Keep Their Cash Safe

🎭 The Story of Cash Kingdom

Imagine you have a piggy bank at home. You put coins in it, sometimes you take money out for ice cream, and you always want to know exactly how much is inside.

Now imagine a business is like having a GIANT piggy bank – but with thousands of coins going in and out every day! How do they keep track of everything? How do they make sure no coins go missing?

Welcome to Cash Kingdom – where we’ll learn the secrets of keeping money safe and organized!

🏦 Cash and Cash Equivalents

What is Cash?

Cash is the money you can spend RIGHT NOW. It’s the coins in your pocket, the bills in your wallet, and the money in your bank account.

For a business, cash includes:

• 💵 Paper money and coins in the cash register
• 🏦 Money in the company’s bank accounts
• 💳 Money orders and checks waiting to be deposited

What are Cash Equivalents?

These are things that can become cash super quickly – usually within 90 days or less. Think of them like ice cream that’s starting to melt – it’s almost liquid!

Examples of Cash Equivalents:

• 📜 Treasury bills (IOUs from the government)
• 💼 Money market funds
• 📝 Short-term certificates of deposit (CDs)

Simple Example: Your grandma gives you a $100 savings bond for your birthday. You can’t spend it at the toy store TODAY, but you can cash it in at the bank very soon. That’s like a cash equivalent!

graph TD
    A["💰 CASH & CASH EQUIVALENTS"] --> B["🪙 Physical Cash"]
    A --> C["🏦 Bank Deposits"]
    A --> D["⚡ Quick-to-Cash Items"]
    B --> E["Coins & Bills"]
    B --> F["Petty Cash Box"]
    C --> G["Checking Account"]
    C --> H["Savings Account"]
    D --> I["Treasury Bills"]
    D --> J["Money Market Funds"]

🔍 Bank Reconciliation

The Detective Game

Have you ever counted your allowance and then checked your piggy bank, only to find the numbers don’t match? Maybe you forgot about the candy bar you bought last week!

Bank reconciliation is like being a detective who solves the mystery of why your records and the bank’s records show different numbers.

Why Do Numbers Get Different?

Your company writes down every time money comes in or goes out. The bank does the same thing. But sometimes they record things on different days!

Common Differences:

The Reconciliation Process

Think of it like matching socks after laundry!

1. Start with the bank’s ending balance
2. Add deposits you made that the bank hasn’t recorded yet
3. Subtract checks you wrote that haven’t cleared yet
4. Adjust for any bank fees or interest
5. Match it to your book balance

Example: Your lemonade stand notebook says you have $150. The bank statement says $180.

Detective work reveals:

• A $50 check you wrote to buy lemons hasn’t cleared yet
• The bank added $20 interest (yay!)

Bank balance: $180 - $50 + $20 = $150 ✓ It matches! Mystery solved!

graph TD
    A["📊 Bank Statement Balance"] --> B["➕ Add: Deposits in Transit"]
    B --> C["➖ Subtract: Outstanding Checks"]
    C --> D["✨ Adjusted Bank Balance"]
    E["📒 Book Balance"] --> F["➕ Add: Interest Earned"]
    F --> G["➖ Subtract: Bank Fees"]
    G --> H["✨ Adjusted Book Balance"]
    D --> I{Do They Match?}
    H --> I
    I -->|Yes| J["✅ Reconciliation Complete!"]
    I -->|No| K["🔍 Keep Investigating!"]

⚙️ Reconciliation Adjustments

Fixing the Differences

Sometimes during bank reconciliation, you discover things that need fixing in your books. These are called adjustments.

Types of Adjustments

Things the Bank Knows That You Forgot:

Making the Adjustments

After finding differences, you need to update your records to match reality.

Example: You run a cookie business. During reconciliation, you discover:

• The bank charged you $15 for new checks
• A customer’s $40 check bounced
• The bank deposited $8 interest into your account

Your Adjustments:

• Subtract $15 (bank fees)
• Subtract $40 (bad check)
• Add $8 (interest earned)
• Total adjustment: -$47

The Golden Rule

After adjustments, your book balance and adjusted bank balance MUST be exactly the same. If they’re not, keep looking – there’s still a mystery to solve!

🐷 Petty Cash Fund

The Little Cash Helper

Imagine your teacher needs to buy emergency supplies – tape, markers, or snacks for the class party. Does she write a big company check for $3 worth of stickers? No way!

Petty cash is a small amount of money kept on hand for tiny, everyday expenses that would be silly to write checks for.

How It Works

1. Set Up: Put a fixed amount (like $100) in a locked box
2. Spend: When someone needs small cash, they take it and leave a receipt
3. Receipts = Money Out: Total of receipts + remaining cash should always equal $100
4. Replenish: When cash runs low, refill back to $100

The Petty Cash Equation

Starting Amount = Remaining Cash + Total Receipts

Example: Monday: Start with $100 petty cash

During the week:

• Buy stamps: $15 (receipt in box)
• Buy coffee for meeting: $12 (receipt in box)
• Emergency supplies: $8 (receipt in box)

Friday: Count what’s left

• Receipts: $15 + $12 + $8 = $35
• Cash remaining: $65
• Total: $35 + $65 = $100 ✓ Perfect!

Time to replenish! Write a check for $35 to fill it back to $100.

Petty Cash Rules

• 🔐 Keep it locked
• 📝 Always get receipts
• 👤 One person in charge
• 📊 Count it regularly
• 💵 Set spending limits

graph TD
    A["🐷 Set Up Petty Cash Fund"] --> B["💵 Place $100 in Locked Box"]
    B --> C["📝 Employee Needs Small Cash"]
    C --> D["Takes Cash + Leaves Receipt"]
    D --> E{Is Cash Running Low?}
    E -->|No| C
    E -->|Yes| F["Count Cash + Receipts"]
    F --> G["Write Check to Replenish"]
    G --> B

🛡️ Cash Controls

Building a Money Fortress

Cash controls are like the security guards, walls, and alarms that protect a castle. They’re the rules and systems that keep money safe from mistakes and bad guys.

Types of Cash Controls

1. Physical Controls – Protecting the Actual Money

• 🔒 Locked safes and cash drawers
• 📹 Security cameras
• 🚨 Alarms and sensors
• 💪 Armored car pickups

2. Record-Keeping Controls – Tracking Every Penny

• 📝 Numbered receipts
• 📊 Daily cash counts
• 💻 Computer tracking systems
• 📋 Transaction logs

3. People Controls – Who Can Touch the Cash

• 🎭 Separation of duties (different people handle different tasks)
• ✍️ Required signatures for big amounts
• 👀 Surprise cash counts
• 📅 Mandatory vacations

Example of Separation of Duties: At a pizza shop:

• Person A takes orders and collects cash
• Person B counts the drawer at end of day
• Person C deposits money at the bank
• Person D reconciles the bank statement

If any one person tried to steal, the others would notice!

Why Controls Matter

🏰 Internal Controls

The Master Security System

Internal controls are the COMPLETE system of rules, checks, and procedures that protect ALL of a company’s assets – not just cash. Think of it as the entire security plan for the kingdom, not just the treasure room.

The Five Parts of Internal Controls

graph TD
    A["🏰 INTERNAL CONTROLS"] --> B["📋 Control Environment"]
    A --> C["🔍 Risk Assessment"]
    A --> D["🔧 Control Activities"]
    A --> E["📢 Information & Communication"]
    A --> F["📊 Monitoring"]

    B --> B1["Tone at the top"]
    C --> C1["Finding weak spots"]
    D --> D1["Actual security measures"]
    E --> E1["Sharing information"]
    F --> F1["Checking if controls work"]

The Five Parts Explained

1. Control Environment 📋 The overall attitude about honesty and controls. If the boss takes controls seriously, everyone else will too!

Like when a teacher runs a fair classroom – students follow the rules because the teacher sets a good example.

2. Risk Assessment 🔍 Finding places where things could go wrong before they do.

Like looking at a playground and saying “that slide is too slippery – someone might fall” before anyone gets hurt.

3. Control Activities 🔧 The actual security measures and rules.

The locked doors, passwords, supervision, and all the specific protections.

4. Information & Communication 📢 Making sure everyone knows the rules and can report problems.

Like having clear signs saying “Employees Only” and a suggestion box for concerns.

5. Monitoring 📊 Regularly checking if controls are working properly.

Like a guard walking around at night to make sure all doors are still locked.

Key Internal Control Principles

The Internal Control Story

Imagine a Candy Store:

Control Environment: The owner is super honest and expects everyone to be too.

Risk Assessment: “What if someone takes candy without paying? What if we order too much and it spoils?”

Control Activities:

• Security cameras watch the store
• Only managers can open the cash register
• Inventory counted every night

Information & Communication:

• Rules posted in the break room
• Anonymous tip line for problems

Monitoring:

• Surprise inspections
• Review security footage weekly
• Compare candy sold to money collected

🎓 Putting It All Together

The Cash Management Kingdom

Now you understand how businesses keep their money safe! Let’s review our journey:

The Final Wisdom

“Every penny tells a story. Cash controls make sure that story has a happy ending!”

Remember: Businesses aren’t being paranoid with all these controls – they’re being smart! Just like you wouldn’t leave your allowance in the middle of the sidewalk, businesses don’t leave their money unprotected.

Now YOU know the secrets of Cash Kingdom! 👑

📝 Quick Memory Guide

Cash = Spend NOW Cash Equivalents = Spend SOON (90 days or less) Bank Reconciliation = Match YOUR records with BANK records Adjustments = Fix differences found Petty Cash = Small money for small needs Cash Controls = Protect the CASH Internal Controls = Protect EVERYTHING