FUND
MANAGEMENT
CHAPTER PROLOGUE
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The term management conjures up
images of placing a cash in bank for
safe keeping .
Cash concepts and techniques are
applied in a wide range of activities.
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Good reasons why one has to
manage cash well:
1. First, at the core of business
operation, regardless of what type
and form of business they are into.
a. Sole
proprietorship
b. Partnership
c. Corporation
Infographic Style
TYPES
OF BUSSINESS
ORGANIZATION
A. SERVICE CONCERN- the
business that render income to
earn income.
B. TRADING CONCERN- these
are the business that sell to earn
income.
C. MANUFACTURING CONCERNthese are the business that convert raw
materials into finished products.
2.Second, it is the asset that is most
susceptible to theft and abuse thus may
cause business failures.
3. Lastly, This can be a good source of
additional income aside from normal
operation.
HOW WELL DO YOU KNOW
CASH?
cash
Cash on hand
Represents as cash collection waiting
to be deposited on the bank.
Cash in bank
Represents the cash already
deposited in the bank.
A.Savings Account
B.Demand Deposits
C. Combo Account
RISKS
1. INHERENT RISKS
2. CONROL RISKS
3. SYSTEMS RISKS
CASH FUND
Funds are classified as cash:
a. PETTY CASH FUND
- this is the fund that will cater the small
expenditures of the company.
- this fund could either be maintained under the
imprest system or the fluctuating. The person
handling this fund is called PETTY CASH
CUSTODIAN.
b. CHANGE FUND
- this fund is used to maintain loose
change to address the concern for
small bills and coins.
c. DIVIDEND FUND
- this is the fund used to pay dividends
which the board of directors have
declared payable a time certain in the
future.
CASH EQUIVALENT
- PAS (Philippine Accounting Standards)
- Short term and highly liquid
investments
- Readily convertible to cash
- Acquired three months before
maturity
If the term is three months of less ,such as instrument is
classified as cash equivalent
If the term is more than three months but within one year,
such investments are classified as SHORT TERM OR
TEMPORARY INVESTMENT and should be presented as
separate current assets.
If the term is more than one year , such investments is
classified as non current or long term investments. However
if such investment will already mature within a year ,then this
will be considered as current assets
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Overnight Placements
BANK Products
(interest are paid at
maturity date)
Weekly time deposits
Monthly time deposits
or
time deposits
60 days, 90 days, 180 days,
one year, 2 years, 3 years
etc.
Trusts
Government Securities
1. Treasury Bills
2.Treasury Notes
3. Treasury warrant
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4. Treasury Bond
ADA Corporation and Subsidiaries
Consolidated Statement of Financial Position
December 31, 2007
(Amounts in Million Pesos)
1.Cash Flow
liquidity Ratio
Cash& cash equivalent
+ Trading Securities +
Cash flow from
Operating activities
/Current liabilities
Gauges the firm’s
ability to pay current
financial obligation by
considering cash and
other equivalents.
2.Days cash
Average Cash Balance
/ Cash Operating
Costs/ 365 days or 360
days
Indicates the ability of
the firm to pay the
average daily cash
obligations.
The breakdown of cash and cash
equivalents must have been:
1.Cash on hand
2. Cash Fund
3. Cash in banks
4. Investments with less than one year
maturity
HOW DO WE VALUE
CASH?
How do we document cash?
A. Provisional Receipt
B. Official Receipt
C. Sales Invoice
D. Daily Collectors Remittance Form
Tips in formatting forms and documentary evidence:
1. What are the information necessary so that the various concerns
of the control aspects could be addressed:
a. Date
b. Serial number
c. Is it thru manual operation or mechanical operation
d. Purpose
2. How big will these forms be
3. Filing
4. Distribution
5. The responsible employees who will handle it.
How Cash is handled?
• Collector
• Cashier
• Junior Accountant
• General Account
• Accounting Supervisor
• Internal Auditor
The following control measures so that the cash will no be
abused.
1. The VP for
Finance should
establish the
policy on cash
handling.
2.From the policy
established , the head
of the accounting
department should
prepare the procedure.
3. The implementation of the procedure is
subject to the review and audit by the internal
audit group or department so that continuous
improvement on the control mechanism may be
done to address the continuous and fast
charging technology of the company.
Collectors collect
the receivable of
the company
Customers as an
alternative, may pay
directly to the office.
The cashier receives the
money from collectors and
customers.
The Junior
Accountant will
journalize the
receipt transactions
The Accounting supervisor
will check the entry and
later on check the bank
reconciliation statement.
Depository bank
The General Accountant will
record the transaction. How
will receive the bank
statement and prepare the
bank reconciliation.
Policy on cash handling :
1. The company should adopt the imprest system
handling cash.
2. The company should maintain the combo
account for easier tracking of banking
transaction.
3. The company should place its money in various
banking companies so as the distribute the risk
involve in banking.
4. The following bank signatories will be observed
a) If the amount of disbursement is P50, 000.00 and
below the following will be the check signatories.
The Comptroller or the Head of the accounting
department and to be countersigned by the Treasurer
or VP Finance.
b) b. If the amount of disbursement is more than P50,
000.00 the following will be the check signatories.
The Comptroller or the Head of the accounting
department and to be countersigned by the Treasurer
or President.
5. Official receipts can only be issued when cash is
received. Check payments received from costumers
or other persons will be covered by provisional
receipts.
6. All funds should be kept and maintained by the
office fund custodian. For the petty cash fund,
should request replenishment once the fund is at
least 40% used to avoid disruption of operation due
to insufficiency of the funds.
PROCEDURE IN CASH HANDLING
1) The cashier upon receiving cash from the
customer or the company collector will issue
on official receipt.
2) The cashier will also issue on official receipt
for check deposits that are already cleared in
banking system.
3) The cashier will deposit the cash
collection up to 12 noon of the current day
intact within the day and money
collections after 12 noon will be deposited
intact the following banking day.
4) The cashier will then prepare the daily
cash position report.
5) The official receipt issued together with
the validated deposit slip and the original
copy of the daily cash position report will
then be forwarded to the accounting
department for file and the preparation of
the appropriate accounting entries and for
eventual entry in the books of accounts.
Common Misuses of Cash
Lapping
- This is a case of misappropriating a collection from one
customer and concealing this defalcation by applying
subsequent collection made from one another customer.
Kiting
- This happens when a check drawn from one depository bank
and deposited bank at the end of the year. There will be no
entries made on this drawing and depositing . This happens
because there is poor internal control . Poor control can be
attributed to poor cash management which is the essence of
his book.
Fraudulent documents and evidence.
-Some employees will make documents and piece of evidence
which are not really true.
How is cash controlled?
1. Establishing good relationship with the bank officer .
There are some banks that are very short term time deposit
investments like:
a. Overnight Placement . Just place your excess money during
the day to an overnight placement and terminate it the
following day.
b. One week time deposit placement. The reason for this is that
the excess money could earn more while waiting for releasing
of check payments to creditors and payees.
c. Enter into a 30 day short investment- Depending on the cash
needs of the company. Under this classification, you could
either get a treasury bill or treasury warrant or treasury note .
1. The time deposit is a product of the bank and the liability in the bank
while the government securities are government products coursed thru
banking system eventual selling and are the liabilities of the
government.
2. The time deposit is covered by the Philippine deposit insurance
coverage of P250,000 while the government notes are covered and
backed up by the Philippine government.
3. The interest of a time deposit can be received at the date of maturity
while the interest form government securities can be received at the
date of placement.
d. If we have any excess cash , while waiting for bigger investment yield,
we can place it in a long term investment in time deposit that will yield
bigger interest and assured of a steady rate of return of our money.
2. Identifying the various books where this cash transactions were recorded in
comparison with the various reports prepared.
3. Routine audit procedures to countercheck the books and reports there is the
employees duties, so that there will be no overlapping of functions and strict
adherence to company's policies and procedures.
4. The preparation of strategic planning, (more than one year to three year of
planning)
5. The preparation of a medium-term development plan (three year to five
year planning)
6. The preparation of a long-term development plan (more than 5 year
planning and consider the future of the company in carrying its vision/ mission.
Bills purchased is a form of discounting , but again if have a good liaison with the
bank officer, this can be waived .
Earmarking is an old terminology used many years back. Now the new term used in
the banking system is confirmation of deposit.
Bouncing Check means that the check you received was not funded and therefore
will not be cleared in banking system.
Concluding Learning
.1. In managing cash, you have to learn different bank accounts to open and funds to set
up.
2. In managing cash, documents are a must because accounting is objective.
3. In managing cash, should be oriented about its role in the account . Their duties and
responsibilities are vital for the achievement of the company’s goal of minimizing risk and
maximizing opportunities.
4 In managing cash, the company should have good representation with the banking and
financing companies so that it can get the best investment oppurtunities.
How is cash controlled?
1. Establishing good relationship with the bank officer .
There are some banks that are very short term time deposit investments like:
a. Overnight Placement . Just place your excess money during the day to an
overnight placement and terminate it the following day.
b. One week time deposit placement. The reason for this is that the excess money
could earn more while waiting for releasing of check payments to creditors and
payees.
c. Enter into a 30 day short investment- Depending on the cash needs of the
company. Under this classification, you could either get a treasury bill or treasury
warrant or treasury note .
How is cash controlled?
1. Establishing good relationship with the bank officer .
There are some banks that are very short term time deposit investments like:
a. Overnight Placement . Just place your excess money during the day to an
overnight placement and terminate it the following day.
b. One week time deposit placement. The reason for this is that the excess money
could earn more while waiting for releasing of check payments to creditors and
payees.
c. Enter into a 30 day short investment- Depending on the cash needs of the
company. Under this classification, you could either get a treasury bill or treasury
warrant or treasury note .