General Considerations.—In keeping record of the various properties of a concern, the greatest care is usually exercised in accounting for the asset cash. This is done because of the difficulty in tracing money that is lost or stolen and the ease with which the thief may get rid of it, due to its universal use as a medium of exchange, and due also to its great value in comparison with its small bulk. Merchandise, supplies, and the like, may be purloined or misappropriated, but not so easily and profitably. Oftentimes, however, unless care is exercised in safe-keeping it, large losses occur also in merchandise. Absolute prevention of losses cannot be expected even with the employment of all possible precautions, but experience shows that certain general safeguards may be placed about both cash and merchandise. In the ultimate analysis the best safeguard is the integrity of the employee; still the employer should not tempt the employee by making the abstraction of his cash an easy performance.

Principle of the Double Record.—A fundamental principle in the handling of cash is to secure a double—not a duplicate—record of its receipt and disbursement. The practice of depositing in a bank all cash receipts and making disbursements only by check should be followed invariably, because it secures this double record—the bank’s record and the cashier’s record. Any discrepancy is detected whenever comparison of the two records is made. When the bank’s record is compared with the cash book record, the balances shown by each are seldom in agreement, chiefly because of the outstanding checks which have not yet been presented to the bank for payment. This requires a reconciliation of the two balances before proof of correctness is secured, which is usually accomplished by subtracting from the bank balance the amount of the outstanding checks. Other adjustments are sometimes necessary. These are explained and a form of reconciliation statement is shown on page 475.

Most concerns object, however, to issuing checks for small amounts, and set therefore a minimum below which they do not issue them. For the purpose of paying smaller amounts, a petty cash fund is provided from which disbursements are made in cash. This fund is established, in the first instance, by a check on the general cash and is from time to time replenished in the same way. In this manner the double record is maintained.

Handling the Petty Cash.—There are two general methods of handling the petty cash. Under the one, entry of the check creating the fund is made as an immediate charge to some expense account and no further accounting is required. This method is based on the theory that the cash is to be used for petty expenses anyway, and might as well be so charged now as later. Subsequent amounts for replenishment of the petty cash are treated in the same way. The objection to this method, from the accounting viewpoint, is that it results in an inaccurate record of expense distribution and a misstatement of the facts in that it charges to expense an item which at the time of the charge is still a part of the general cash fund. The second and chief objection is that it encourages in the petty cashier loose methods in handling and accounting for the fund, as usually no strict reckoning is required.

The second method, known as the “imprest method,” is in more general favor. This charges the original check creating the fund to an account called “Petty Cash.” The petty cashier is required to secure a receipted bill, sales ticket, or other voucher for every petty cash item of expenditure, so that at all times the amount of cash in his possession added to the receipted bills and vouchers must equal the original amount in the fund. Usually the fund is a fixed amount, its size depending upon the needs of the business for these small expenditures. When the cash in the fund becomes low, the petty cashier turns over his receipted bills to the general cashier, who issues a check for their exact total to replenish the petty cash by the amount of its depletion, thus restoring it to its original fixed amount.

The expenditures as shown by the receipted bills and vouchers are classified and entered by either of the following two methods: (1) as a charge to the several accounts through the general cash book, offsetting the petty cash replenishing check; in this case no charge appears in the “Petty Cash” account except the item covering the original check; or (2) by an entry through the journal debiting the various expenses and other items and crediting Petty Cash. This latter method necessitates charging in the general cash book the replenishing check to Petty Cash as an offset to the journal credit of the same amount. Most accountants consider the postings to the Petty Cash unnecessary—except the original—and so check both in cash book and journal. If, however, posting to the Petty Cash account in the general ledger is made whenever the fund is replenished, this will serve to indicate the activity of the fund on the face of the ledger account—information which could just as easily be obtained from the petty cash book. The imprest method thus effects a careful accounting of the petty expenditures.

The Petty Cash Book.—The petty cash book is usually a columnar record with the amount columns to the right of the explanation space. The first column is the receipts column, the second the disbursements column, and the others show under appropriate titles the distribution of disbursements. One form of the book is shown in Form 39, with typical entries and balancing.

Sometimes the classified summary which is made the basis of the general cash book or journal entry referred to above, is shown in the petty cash book, the account titles being written in the explanation column, with the amounts opposite in the credit column underneath the $100 total. The items of this summary are then posted to the ledger, and the debit of the replenishing check to Petty Cash on the general cash book is “checked” in the ledger folio column. Or if the distributive column titles give sufficiently analyzed account titles, their totals may be posted without formal summarization, posting being shown by the small-figure ledger page in each column, as in the illustration. Where the petty cash book is used as a posting medium, of course no summarization of it is made either in the journal or the general cash book.

Keeping the Bank Account.—Several different methods of keeping the bank account are in use. Sometimes the check stub is the only record kept; in Chapter XXIII reference was made to the two methods of keeping the account for the entry of deposits—either on the face or the back of the stub. When the entry is made on the face, each check is usually subtracted from the previous balance and the new balance is shown. When deposits are recorded on the back of the stub—or on a special deposit interleaf—check totals and deposit totals may be carried forward from leaf to leaf without showing any balance.

A better method is to use the stub only as a memo from which to make formal entry in the cash book columns—one for deposits on the debit side and one for checks on the credit side. These bank columns may be used, first, for the purpose of keeping the bank account, by showing the totals of deposits—but not the items composing each deposit—and the totals of the checks that have been drawn; and second, for the purpose of furnishing weekly or monthly totals for posting to a ledger account kept with the bank, thus making the ledger self-balancing without having to bring in the cash book balance.

If, however, the principle of double record (explained earlier in the chapter) is followed, there is no need of a special bank deposits column, since the total of the Net Cash column gives the amount of each day’s deposits, and similarly the Net Cash column on the credit side shows the checks drawn against the bank. Thus the policy of depositing in the bank all receipts and disbursing only by check has an added advantage in that it simplifies the keeping of the record of cash as well as proving it. Under this method, the cash journals may be summarized, just as the other journals, and posted to a Cash account in the ledger. Detailed instructions for the handling of the entries, balancing, and closing under this method are given in Chapter XXXI.

Another and rather unusual method of keeping the cash book is to carry a Currency column on each side, supplemented by Bank columns for deposits and checks on the debit and credit sides respectively. In the debit Currency column are entered all receipts of money in regular course. When the bank deposit is made up, its amount is entered as a charge to the bank in the credit Currency column and also, as a memo, in the debit Bank column. As checks are drawn they are entered in the credit Bank column. Thus the balance of the Currency columns should show the actual amount of cash in the cash drawer at any time, and the difference between the Bank columns should show the balance in the bank. Though somewhat complicated, the method has its advantages under conditions where currency accumulates before being deposited in the bank.

Of course, under all methods of keeping the cash record, the requirement that all cash received be deposited and payment be made only by check should be strictly adhered to.

Entering Checks on the Cash Book.—When all disbursements are by check, every check drawn must be entered on the cash book and accounted for. Entry should be made in numerical sequence with suitable explanation of any spoiled checks. The amount of the spoiled check may be left blank or entered as usual, but in the latter case the spoiled check must also be included in the day’s deposits, and the bank’s cancellation stamp must be secured. Neither the deposit nor disbursement is posted, each entry being marked “contra” by way of explanation. This effects an inflation of the total receipts and disbursements, but inasmuch as the bank’s record also shows the inflation, an adequate safeguard is secured. The new check replacing the one spoiled is entered in regular order.

The method just discussed is perhaps the best way of recording the exchange of checks for cash. Sometimes a concern is asked to exchange its check for currency, the party making the request desiring to send the check through the mails or for some other purpose. The entry is best made on both the debit and the credit side of the cash book with reference “contra” in each case, but neither entry need be posted. This makes the cash book record check against the bank record and shows the full history of the transaction. When a check is cashed in currency, or when a check of larger amount is received in payment of a debt and the difference is returned in cash, no record need be made of the check, as only the nature—not the amount—of the deposit for the day is changed and no disbursement is made which affects the bank account. When, however, a check is issued for “change” in lieu of currency, record should be made, debit and credit, as shown above.

Branch Cash—The Working Fund.—Frequently cash working funds must be provided for the current expenses of branches or of a factory located at a distance from the main office. When the branch or factory keeps a separate set of books, it must be charged with the advances of the working fund and a careful audit of the way the fund is handled must be made periodically, just as would be done with an independent concern.

Such cash transfers may also be handled by the imprest method as explained above. The original advance is charged to “Factory” or “Branch Cash,” and is deposited in the branch’s local bank to the credit of the head office, the branch having the privilege of using it. The branch may draw checks against the fund, sending the canceled checks to the head office as supporting vouchers for its disbursements. These canceled checks become the basis for the replenishing checks and also for the charges for branch expenditures made on the head office books.

If the branch is a selling agency making sales for cash and on account, a modification of the system is necessary. Daily reports should be required from the branch. Its cash receipts should be deposited daily and a duplicate deposit ticket should be forwarded to the head office by the bank. The bank should be asked also to forward all canceled checks. All collections on customers’ accounts should be made from the head office. This does not prevent the abstraction of cash before deposit, but it at least places control or oversight of the bank cash account in the hands of the head office and secures a careful accounting of it.

Safeguarding Cash—General Principles.—Proper safeguards for the cash should always be provided. The method of the double record—the bank’s and the owner’s cash book—is good so far as it goes and acts as a check on cash transactions after the record is made, but does not insure that the cash book record will be made correctly in the first place. There are ways in which cash received may get into the cashier’s or salesmen’s pockets instead of the cash book. No system or method has yet been devised to prevent this entirely. Every system must rest at some point upon the integrity of the human agent, and will fail of its full efficiency and intended results if the agent fails in the trust reposed in him. Every effort should be made to prevent both petty thievery—the abstraction of small sums at every opportunity—and systematic robbery mapped out and planned with infinite care and detail. Only everlasting vigilance and a system of “checks” will secure satisfactory results, as occasionally it is the trusted employee who is not true to the trust placed in him.

Internal Check.—By internal check is meant the method by which employees check each other’s records, control not resting entirely in any one clerk. Thus a system of record-making which combines the work of the cashier and bookkeeper under one clerk or which gives the cashier access to the ledgers is one which invites dishonesty.

Where the cashier has entire control of the cash, and besides opens the incoming mail, makes up his daily deposits, has his pass-books balanced periodically, and files the canceled checks, he has every opportunity to abstract cash and falsify his records. But where he must make detailed daily reports of the cash to the manager, treasurer, or some other officer; where he is denied access to the records—except his own cash record—and where his record is subject to periodic proof; where the mail is opened first and receipts listed by an independent clerk; where a careful system of proving receipts from cash sales and of allowing no unauthorized deliveries over the counter is employed; where every member of the office force is required to take a vacation during which his work and records are cared for by other employees—there is a very satisfactory system of internal safeguards and checks.

All these devices and systems are applicable in full only in large concerns where minute division of duties is possible. In smaller concerns where many duties have to be combined under one person, the problem of safeguarding the cash and providing other measures to prevent fraud of various sorts is more difficult. In such a concern, at least the cash received through the mail should be listed first by someone other than the cashier or bookkeeper, and the daily deposit slip should be compared with this list to see that all the cash items are included. The cash received from cash sales should also be proved daily against the sales tickets.

Statement of Receipts and Disbursements.—A periodic report of cash is usually made by means of a statement of receipts and disbursements. This statement is an abstract or summary of the cash book, showing the total receipts from various sources and the causes of the disbursements and their totals. A simple form is given below:

To assist in checking past deposits, an itemized record of daily cash receipts is often kept, analyzed as to gold, silver, currency, notes and checks. To be of value this record should be filed with the daily deposit tickets and should be later available for purposes of comparison.