Scenario Analysis No. 17 – Managing collections at front-desk counters? You need to manage more than one petty-cash kitty for this!

Sometimes in business I see that cash sales are transacted at the front-desk manned by staff. For smooth operations of the business, there is a need to track and monitor the transactions which must be properly segregated between the staff managing the cash respectively.

Conceptually, each staff handling the cash transactions are designated as a “Petty Cash Custodian”. Thus, if there are five such staff, then there will be “Petty Cash Custodian No. 1” to “Petty Cash Custodian No. 5”.

The cash inflows into the business will be captured under “Cash In-Transit”. In the example, there will accordingly be “Cash In-Transit No. 1” to “Cash In-Transit No. 5” for the five custodians respectively.

Transactions can either be updated at the end of each business day; or be updated as and when each transaction occurs during the day. Kindly note that the date of the transaction is critical to monitor the cashflows.

When the cash transaction occurs, an invoice is issued by the “petty-cash custodian”. Illustrations from the system are as follows:

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The accounting entries are as follows:

DR    Debtors – Petty Cash Custodian      CR    Creditors – Unbilled

Once the information for invoice issuance are submitted, the accounting entries are updated accordingly to reflect the transaction. An illustration is as below:

17-3

Note: When the invoice is generated, information on the product/service item needs to be entered. This can be managed in two ways. Either as “Pricebook Item”; or as “Ad hoc Item”. For the former, details of the product/items are updated prior in the system. For the latter, there is no Pricebook Item updated prior in the system.

As part of the internal control process, the invoice needs to be verified and approved in the system. Illustration as below:

(Before approval)

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(After approval)

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When the customer pays and the cash is collected, a receipt is issued from the system.

Illustrations from the system (before issuance) are as follows:

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17-7

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The accounting entries are as follows:

DR    Petty Cash – In Transit           CR    Debtors – Petty Cash Custodian

Once the entries for receipt issuance are submitted, the accounting entries are validated to reflect the transaction. Additional accounting entries can be added to reflect Charges and Other Expense Items e.g. Discounts, Service Charges, etc.

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A manual receipt can also be issued to the payer. Sample is as follows:

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Illustrations from the system (after issuance) are as follows:

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The receipt needs to be verified and approved in the system as part of the internal control process. Illustration as below:

(Before approval)

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(After approval)

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The status of the cash-flows reviewed from the “Account Statement” for the staff managing the cash (Petty Cash Custodian). Illustration of Account Statement is as below:

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Or a copy of the daily Account Statement is generated and verified. An example is as below.

Any balance remaining in the Statement needs to be explainable for internal control purposes. It can be due to delayed payment received from third party or Expense Items yet to be recognised.

It is advisable that an Account Statement for the “Debtors – Petty Cash Custodian” is issued at the end of the business day to determine the uncollected cash or amount owing by customer.

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The cash collected can also be reviewed accordingly.

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The amount shown will be the net incoming cash collected. At the end of the business day or any part thereof, the cash collected is submitted to the Chief Cashier. Once the amount is validated, the accounting entries to reflect this situation are as follows:

DR    Petty Cash – Main         CR    Petty Cash – In Transit

Once Petty Cash Main is updated, the cash is with the business and no more under the accountability of the related Petty Cash Custodian.

GNZ.

 

 

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