Page 132 - Accounting Best Practices

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6–10 Proliferate Petty-Cash Boxes
limited banking needs do not bother with a zero-balance account because they do
not like the notion of having extra complexity in their banking procedures. These
small organizations prefer to handle all banking transactions through a single
bank account, which is certainly an acceptable approach when there is a limited
volume of cash flow in and out of a company. With the exception of these two
cases, however, most companies will find that having a zero-balance account is
an excellent way to centralize their funds in a single location.
Cost: Installation time:

6–10 PROLIFERATE PETTY-CASH BOXES

One of the greatest nuisances for the accounts payable staff is when it receives a
constant stream of requests from all over the company for manual checks in very
small amounts, usually for small daily transactions that cannot possibly be antic-
ipated, such as for flowers for an employee who is in the hospital or fees for an
emergency building repair. When these manual checks are cut, it is a common
occurrence to forget to log them into the computer system, resulting in a difficult
bank reconciliation process for an accounting clerk, as well as cash balances that
are lower than expected—both problems that impact the orderly management of
cash. One way to offset this problem is to give departments their own checking
accounts or even a set of checks that are drawn on the main checking account.
The first option requires additional bank reconciliations, and both options will
probably result in even more checks not initially recorded in the computer sys-
tem. In short, the need for small amounts of cash can add up to a moderate
headache for the cash management staff.
A good way to avoid this problem is to set up a number of small petty-cash
boxes in those areas of the company where cash requests are the most common.
A person in each department is made responsible for the cash in each box, trained
in how to record cash receipts and expenditures, and allowed to handle all cash
transactions from that point forward. To ensure that there is proper control, the
internal audit staff may reconcile the balances in each petty-cash box from time
to time. By using this approach, the demand for manual checks will be signifi-
cantly reduced, improving the accuracy of the cash book balance while also mak-
ing the bank reconciliation process a much easier one. The only problem with
this method is that there is some risk of theft from the petty-cash boxes, but this
risk is a minor one, given the small amount of cash kept in the boxes. On the
whole, this is a good best practice to use in situations where a company is having
difficulty in precisely determining its cash balances.
Cost: Installation time: