Physical Protection Of Cash Balances

Not only must cash receipts and cash disbursements be safeguarded through internal control measures, but also the cash on hand and in banks must be protected. Because receipts become cash on hand and disbursements are made from cash in banks, adequate control of receipts and disbursements is a part of the protection of cash balances. Certain other procedures, however, should be given some consideration. Physical protection of cash is so elementary a necessity that it requires little discussion....

The Imprest Petty Cash System

Almost every company finds it necessary to pay small amounts for a great many things such as taxi fares, minor office supplies, employees' lunches, and other miscellaneous expenses. It is frequently impractical to require that such disbursements be made by check, yet some control over them is important. A simple method of obtaining reasonable control, while adhering to the rule of disbursement by check, is the imprest system for petty cash disbursements. This is how the system works 1. Someone...

Ugly Duckling or Swan

Ugly Duckling Corporation is a used car dealer that has carved out a niche by selling cars to customers with questionable credit histories. Ugly Duckling and other sub-prime lenders attempt to make a profit by loaning money to riskier borrowers so they can purchase automobiles or homes. To compensate for the higher probability of default of these customers, sub-prime lenders charge higher rates of interest on these high-risk loans. In theory, this strategy should work. Although some borrowers...

Sales of Receivables

Sales of receivables have increased substantially in recent years. A common type is a sale to a factor. Factors are finance companies or banks that buy receivables from businesses for a fee and then collect the remittances directly from the customers. Factoring receivables is traditionally associated with the textile, apparel, footwear, furniture, and home furnishing industries.18 An illustration of a factoring arrangement is shown below. As indicated in the opening story, a recent phenomenon...

Going For Broke

The start of the new millennium has been a tough one for companies and their investors, creditors, and employees. Recently WorldCom, Enron, and Kmart all declared bankruptcy. WorldCom, for example, is the largest company ever to declare bankruptcy, with Enron and Kmart not far behind. Industries like telecom, retail, and steel are in serious financial difficulty. And the trend seems to be continuing. In 2000, 176 publicly traded companies filed for bankruptcy. In 2001, 257 companies did so. And...

Note Issued at Face Value

To illustrate the discounting of a note issued at face value, assume that Bigelow Corp. lends Scandinavian Imports 10,000 in exchange for a 10,000, 3-year note bearing interest at 10 percent annually. The market rate of interest for a note of similar risk is also 10 percent. A time diagram depicting both cash flows is shown below. The present value or exchange price of the note is computed as follows. S1.000 PliF.CM31tm S1.000 v 2.48685 Present Value of Note Stated and Market Rates the Same In...

Restricted Cash

Petty cash, payroll, and dividend funds are examples of cash set aside for a particular purpose. In most situations, these fund balances are not material and therefore are not segregated from cash when reported in the financial statements. When material in amount, restricted cash is segregated from regular cash for reporting purposes. The restricted cash is classified either in the current assets or in the long-term assets section, depending on the date of availability or disbursement....