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Chapter 6: Problem 15

What steps can a firm take to protect cash held on its premises?

Short Answer

Expert verified
To secure cash held in premises, the firm could enhance physical security, use modern technology for protection, provide regular staff training, perform routine audits, and try to reduce its overall dependence on cash.

Step by step solution

01

Physical Security

The company needs to invest in strengthened physical security. This includes measures such as a solid safe, security cameras, and possibly even security personnel if the amount of cash on hand regularly is substantial.
02

Technological Protection

Adapting to technological means such as installing alarms, timed locks or automated counting machines can add an additional layer of security and efficiency, decreasing the amount of time cash is exposed.
03

Training & Policies

The firm should provide regular training for the employees handling cash. It should implement strict policies, such as dual control procedures, where at least two employees are required to count cash, operate cash registers etc.
04

Regular Audits

Conducting regular audit checks could be a deterrence for any potential misappropriation. The idea of a regular check up might discourage any cash mishandling or theft.
05

Decrease Dependence on Cash

In modern business transactions, less reliance should be on cash. Cash comes with many risks such as theft and damage. Encouraging electronic transactions decreases cash flow on the premises, making it safer.

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Physical Security
Physical security is one of the most crucial aspects of cash management when keeping cash on-site. Ensuring the safety of cash involves the implementation of several practical measures.
  • Solid Safes: Investing in a robust safe where cash can be securely locked away is a fundamental step. Look for safes that are burglar-resistant and fireproof to provide maximum protection.
  • Security Cameras: Installing video surveillance cameras can act as both a deterrent to would-be thieves and as a tool for monitoring cash handling practices.
  • Security Personnel: Employing security guards might be necessary, especially when large amounts of cash are involved. Personnel can help respond promptly to any suspicious activity.
Enhancing physical security helps detect suspicious activities early and can prevent possible thefts or mismanagement of cash.
Technological Protection
With advances in technology, there are several tools available to enhance cash management and security. Implementing technological solutions can reduce risks significantly.
  • Alarms: Installing sophisticated alarm systems can alert the authorities in case of unauthorized access to cash.
  • Timed Locks: Using timed locks ensures that safes and cash storage areas cannot be accessed outside of authorized hours.
  • Automated Counting Machines: These machines help in swiftly counting cash, reducing human error as well as the risk of theft during manual counting.
Using these technological means can streamline cash handling processes while safeguarding against theft and errors.
Employee Training
Properly training employees who handle cash is imperative to ensure its safe management. Training programs should focus on instilling effective cash handling practices and fostering a culture of responsibility.
  • Regular Training Sessions: Organizing periodic training sessions ensures that employees are well-versed in the latest security protocols and procedures.
  • Dual Control Procedures: Implement policies where at least two employees are present during critical cash handling tasks. This not only deters fraud but also ensures accuracy.
  • Strict Policies: Encourage adherence to strict guidelines about cash handling, storage, and reporting. This could involve reporting discrepancies immediately and maintaining proper documentation.
These training measures help create a well-informed team that can manage cash responsibly and securely.
Regular Audits
Conducting regular audits is crucial for the effective management of cash on premises. Audits serve as a system of checks and balances, designed to identify any anomalies in cash handling and to discourage dishonest behavior.
  • Deterrence Effect: The knowledge of an impending audit can deter employees from attempting theft or mismanagement.
  • Identifying Issues: Audits can help uncover discrepancies or inefficiencies in current cash management practices, allowing for timely corrections.
  • Enhancing Transparency: Regular checks enhance transparency and accountability associated with cash handling.
Routine audits provide the assurance that cash handling procedures are being followed appropriately, thus minimizing the risk of losses or fraud.
Electronic Transactions
In today鈥檚 digital age, reducing reliance on cash by increasing electronic transactions can significantly enhance cash management efficiency and security.
  • Reduced Cash Handling: Encouraging more payments through digital means decreases the cash flow on premises, directly reducing the associated risks of theft or loss.
  • Enhanced Security: Electronic transactions are generally more secure as they leave an audit trail, making tracing transactions possible and reducing fraud.
  • Convenience and Speed: Digital payments are faster and more convenient for both businesses and customers, allowing for smoother and more efficient operations.
Transitioning to electronic transactions aids in minimizing risks related to cash security, while also benefiting from the efficiency and convenience they provide.

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Most popular questions from this chapter

Under what circumstances might cash not be considered a current asset?

Describe the circumstances under which a manager might want to change her firm's inventory method from FIFO to LIFO. Similarly, describe why a change from LIFO to FIFO might be desirable.

The Amber Corporation purchased three different stocks during the year as follows: 100 shares of Fancy Corporation, cost 23 dollars per share 250 shares of Traylor Corporation, cost 15 dollars per share 180 shares of Sensor Corporation, cost 7 dollars per share Amber Corporation intends to sell these soon when its cash flow gets low. On the balance sheet date, these securities had a market price as follows: 1\. Fancy Corporation: 24 dollars per share 2\. Traylor Corporation: \(\$ 12\) per share 3\. Sensor Corporation: \$9 per share a. Assuming that these securities are considered available-for-sale, what would be the effect on the financial statements of holding these securities? b. Assuming that these securities are considered trading securities, what would be the effect on the financial statements? c. What if, after the balance sheet date, Amber decides to sell Traylor Corporation stock for a market price of \(\$ 14\) per share? What would be the effect on the financial statements if the security is (1) available-for-sale or (2) trading?

Pioneer Resource, Inc., reported the following in its Notes to Consolidated Financial Statements for 1999.Material and Supplies: Inventories of new and reusable material and supplies are stated at the lower of cost or market with cost determined on a FIFO or average cost basis. For certain large individual items, however, cost is determined on a specific identification basis.a. Identify and explain, in your own words, all of the inventory costing methods used by Pioneer Resource. b. Why might Pioneer Resource use these different methods? Do these various inventory methods enhance the internal consistency and usability of Pioneer Resource's financial data? Why?c. If inventories comprised only \(1 \%\) of Pioneer Resource's assets, how would that change your views on Pioneer's use of these different inventory costing methods? What if inventories were \(15 \%\) of Pioneer Resource's assets? d. If the inventory balances reported by Pioneer Resource in 1999 and 1998 were \(\$ 212.3\) and \(\$ 212.2\) million, respectively, how would that change your view of Pioneer Resource's choice of reporting methods? Note that Pioneer Resource's 1999 total assets exceeded \(\$ 22.4\) billion. If in subsequent years you found that Pioneer Resource's inventories had increased by \(300 \%\), how would that change your views of these diverse inventory costing methods?

Pratsky, Inc., had the following account balances:During 2000 , the corporation had the following transactions: 1\. Issued common stock for \(\$ 40,000\) cash. 2\. Purchased inventory on account; 200 units \(@ \$ 38\), then 150 units \(@ \$ 39\) Note: Beginning inventory was comprised of 500 units @ \$35. 3\. Purchased 200 shares of IBM for \(\$ 45 /\) share and purchased 100 shares of \(\mathrm{Mi}\) crosoft for \(\$ 90 /\) share 4\. Sales at retail during 2000 were \(\$ 75,000\) (half received in cash, and the balance on account 5\. Write-offs of uncollectible accounts totaled \(\$ 2,600\). 6\. Received 38,000 dollars from receivable customers. 7\. Paid creditors on account, \(\$ 18,000\). Paid operating expenses for the current period of 51,000 dollars 8. At year-end, a physical inventory equaled 225 units.The company uses the LIFO inventory costing method. 9\. Assume that marketable securities are "available-for-sale," and the market price at December \(31,2000,\) for \(\mathrm{IBM}\) is \(\$ 42 / \mathrm{share},\) and for Microsoft 102 dollars share 10. Based on the accounts receivable aging, management feels that the allowance for uncollectible accounts should have a balance of \(\$ 5,700\) at year end.a. Set up the beginning balances in the balance sheet equation. Leave enough room to add new columns as necessary. b. Record transactions 1 through 10 using the balance sheet equation. c. Calculate the following ratios for 1999 and 2000 and evaluate the company's management of its accounts receivable:Accounts receivable/sales (assume that sales in 1999 were \(\$ 125,786\) ) Sales/day Collection period Allowance as a percentage of accounts receivable.
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