FINANCIAL MANAGEMENT

FUND
MANAGEMENT

Group 3
 LEARNING OBJECTIVES
After finishing this session, the learner should be able to:
1. Set the parameters of what cash is all about;Use
appropriate bank products for orderly management of
fund; and
3.Understand the internal control measures adopted by
persons handling the cash and the documents and
evidence attached to it;
4.Detect and resolve common misuses of cash; and
5.See cash as a potential source of additional income for
the company.
LEARNING CONTENTS:

To some people, the term cash management conjures

up images of placing cash in a bank for safe keeping.
Interestingly enough, the field of cash management has
broadened considerably. Cash concepts and techniques are
applied to a wide range of activities and situations outside
the cash parlance alone. As it goes beyond, cash becomes
more important than just merely receiving and placing it in a
bank and disbursing it. Actually, there are a lot of good
reasons why one has to manage cash well. Some of the
reasons are as follows:
 First, it is at the core business operation, regardless of what type
and form of business they are into. This form of business organization
as discussed in Chapter I of this textbook are:
Sole Proprietorship – owned by one person and whose the
owner is called proprietor (male owner) or proprietress (in case of
a female owner).
Partnership – owned by two or more persons whose owners are
called partners.
Corporation – owned by five or more persons are called
corporators. Corporator is a generic name of the owner of the
corporate form of business organization. To be specific, if the
corporation is a stock corporation, then name of the owner is
stockholder or shareholder or stakeholder; in case of a non-stock
corporation, the name of the owners are members.
While the types of business organization are:
Service concern – these are the businesses that render services to earn
income. For example barber shop, beauty parlor, schools, hospitals, repair
shop, etc.
Trading Concern – these are the businesses that sell to earn income. For
example, drug store, hardware, sari-sari store, boutique, etc.
Manufacturing Concern – these are the business that convert raw
materials into finished products. Like furniture shop, shoe factory, etc.
Second, it is the asset that is most susceptible to theft and abuse thus, may
cause many business failures: and
Lastly, this can be a good source of additional income aside from normal
operation. Just make sure that when you manage the fund, your focus is on
maximizing earnings while minimizing the risk.
Now, if you would like to see the cash of the company, you can easily
identify it is the first account in the balance sheet. As accounting goes
global and as international accounting standards slowly creep in the
Philippine accounting environment one must be sensitive on how cash
is being presented, valued, and concretized. Its components and
restrictions must be studied at large because without which it would be
complex to manage cash.
The new generation companies have changed its concept of
cash managers to what are now the fund managers because fund
encompasses the definition of what cash is all about. The fund now
goes broader and deeper to manage.
From this point of view, cash is defined as money and any other
negotiable instrument that is payable in money and acceptable by the
bank for deposit and immediate credit. To be classified as cash, it must
be unrestricted and must be readily available for payment of current
obligations.
How well do you know cash?
Before a person can manage cash, he\she should
have a sound knowledge of what is cash all about. In this
chapter, we have to reveal the whole environment of this
account so we can plan, direct and control to be able to
maximize its earning potential and safeguard its handling.
I. Types of cash
1. Cash on hand – this represents the cash collection waiting to be
deposited the following banking day.
2. Cash in bank – this represents the cash already deposited in the
bank. This cash in bank could either be:
a. Savings Account – this is an account where the money
deposited in the bank. This cash in bank interest income for the
meantime while it is not yet used. This evidenced by a savings
passbook.
b. Demand Deposit – sometimes called checking account or
current account. Normally, demand deposit account does not earn
interest. This is evidenced by a checkbook.
c. Combo Account – there are some banking companies that
tried to combine savings account and demand deposit into one
account. The banking system normally called it combo account. For
this account, the bank will require a bigger compensation balance and
the trade off will be grant of interest on their average daily balance.
Compensating balances are maintaining balances required by bank
whenever you open a bank account.
I. Types of cash
3. Cash fund – ideally, company cash has to be maintained under
the imprest system of cash handling. For this matter, the company
has to maintain a certain fund to comply with the other fund
requirements of the company. According to PAS 7 if the fund is
intended for current operation, the fund will also be classified as
current asset, otherwise, such fund will be classified as non-current
asset.
Normally, the following funds are classified as cash:
A. Petty Cash Fund – this is the fund that will cater the small
expenditures of the company. This fund could either be maintained
under the imprest system or the fluctuating. The person handling this
fund is called Petty Cash Custodian.
B. Change Fund – this fund is used to maintain loose change to
address the concern for small bills and coins. Normally, this is being
handled by the company cashier.
C. Dividend fund – this is the fund used to pay for the dividends
which the board of directors have declared and payable a time certain
in the future. Normally, this is being handled by the company cashier.
THE FOLLOWING ARE THE INHERENT RISKS
FOR NOT MAINTAINING A CHANGE FUND:
1. If the customer pays to the cashier big bills especially
during the store opening, there might be no smaller bills
available to change and so the cashier might be forced to
get money as change from her personal belonging and
therefore the cashier's personal money and the company's
money mixed up and as a result shortage and overages
arise.

2. Customers will have to wait as the cashier sourced out for

the change.

3. Quality of customer service decreased and end-up with

customer's dissatisfaction.
The following are funds classified as non-current assets.

Other funds which might be set aside for a special purpose and used in
settling non-current liabilities should also be classified as non-current
like, sinking fund, preference redemption fund, contingent fund, etc.

4. Cash equivalent - the PAS (Philippine Accounting Standards) define

cash equivalents as short term and highly liquid investments (those that
are acquired three months before maturity) are readily convertible to
cash and so near their maturity that they present insignificant risk of
changes in value.

These are the cash placed in the bank particularly, time deposit which
are short term and pre-terminable. The purpose of which is to maximize
the earning potential of cash of the company.
Under the generally accepted accounting principles, the
following criteria are set for its proper valuation:

a. If the term is three months of less, such instrument is

classified as cash equivalent;

b. If the term is more than three months but within one

year, such investments are classified as short term or
temporary investment and should be presented as
separate current assets; and

c. If the term is more than one year, such investment is

classified as non-current or long-term investment.
However, if such investment will already mature within a
year, then this will be considered as current asset.
NORMALLY, BANKS HAVE THE FOLLOWING
PRODUCTS:

Bank Products (interest are paid at maturity date)

1) Overnight placements

2) Weekly time deposits

3) Monthly time deposits or 30-day time deposits

4) 60 days, 90 days, 180 days, one year, 2 years, 3 years etc.

5) Trusts
Government Securities (normally interest are paid at placement
date and if ever interest can be received at the placement date,
as an investor, you can maximize your investment by investing
also the interest. In such case, your interest will also earn
interest)

1) Treasury Bills

2) Treasury Notes

3) Treasury Warrant

4) Treasury Bond
Cash flow liquidity ratio = cash & cash
equivalents + Trading securities + cash flow from
operating activies / current liabilities

Days cash = Average Cash Balance / Cash operating

cost / 356 days or 360 days
Those investments that the company made long term say, one year
maturity and on- wards, are no longer included in the above ratio and
thus makes sense. So, as a learner of this chapter, make sure you are
able to identify what constitutes cash and cash equivalents, which are
usually shown in the year-end Balance Sheet of every business
enterprise.

The breakdown of the cash and cash equivalents must have been:

1. Cash on hand

2. Cash fund

3. Cash in banks

4. Investments with less than one year maturity

Let us consider the best practices of the some of the companies
whom we have managed for many years.

Company I

1. All collections will be deposited in one account for control

purposes. The account is a combo account with Security Bank
Corporation. The combo account of the bank is very convenient
because it is documented with a passbook, which will show the
deposits made and the checks that cleared for the day.

2. We maintained a Daily Cash Position Report (DCPR) (a sample

copy of which is shown at the end of this chapter). The DCPR will
show how much collection were still undeposited and how much of
the checks issued were still unreleased as well as how much were
not yet encashed. Checks not yet encashed at the bank are what we
call outstanding checks. With these information, we can learn how
much is our excess cash.
How to determine excess cash:

Book balance P500,000

Less: deposit for clearing 20,000

Balance P480,000

Add: checks issued but unreleased 50,000

Actual cash balance P530,000

So, if the maintaining balance is P500,000 then we have an excess

cash of P30,000.
II. How do we value Cash?

Cash is valued at face value. For cash denominated in foreign currency, like the US dollar, Japanese yen, etc. this should
be converted to current rate (current rate would mean the rate on the last banking day at the end of the accounting
period). If the deposit is placed in a bank having financial difficulty, the face value should be written down to estimated
realizable value.

For example:

Assume that ADA Corporation, has a dollar account with Security Bank Corporation with a balance of $350,000. Since our
financial reporting is in peso currency, we have to convert this dollar to its peso equivalent using the current rate. By using
current rate, we mean the rate at the end of the accounting period. This dollar account was purchased by the company in
May, 2009 for P48.50 or a peso equiva- lent of P16,975,000.

If at the end of the December 31, 2009 the current rate was P48.00 to dollar. Then you will be adjusting your dollar
account to the current rate. The balance of the ADAorporation at December 31, 2009 will show P16,800,000.

Due to this, ADA Corporation has incurred a Forex loss of P175,000. This concept will hold thru with other currencies
which business enterprises may maintain in any banking and financial institution.
III. HOW DO WE DOCUMENT CASH?

Documenting cash is essential for it

is in this way that we are assured
that our cash is properly
documented with evidence to
support the transactions as it is
entered in the books of accounts.
PROVISIONAL RECEIPT

a. Normally, this receipt is issued by collectors,

whether cash or check collection. This provisional
receipt should be surrendered by the collector to
the office cashier every day.

b. This receipt will also be issued by the office

cashier in case of check payments. This is so
because check payments require 3 clearing days
with the banking system.
PROVISIONAL RECEIPT
Ideally, this provisional receipt must be in
triplicate.

a. The original must be given to the person paying;

b. The duplicate must be given to the cashier
together with the collectors remittance form; and
c. The triplicate will be left in the booklet for
reference. When the booklet is fully used up, this
booklet will be surrendered to the office for
safekeeping and reference for audit purposes only.
 OFFICIAL RECEIPT

a. This receipt is issued by the office cashier in case of

cash payments.
b. This will also be issued whenever the collector
remits the cash collection to the office cashier.
c. This will also be issued for check collections for
which a provisional receipt was issued having passed
the three-day clearing period.
 OFFICIAL RECEIPT

Ideally, this official receipt must be in triplicate.

a. The original must be given to the person paying;

b. The duplicate must be given to the accounting
department for recording; and
c. The triplicate will be left in the booklet for the
cashier's copy. When the booklet is fully used up, this
booklet will be surrendered to the accounting
department for filing and for audit purposes only.
 SALES INVOICE
Ordinarily, sales invoices are considered cash sales
invoices. However, there are some business
establishments that uses the sales invoice for
credit sales or sales on account.

Normally, when sales invoices are used as credit

sales invoice, there is a notation that in case the
account is not settled within the prescribed credit
period, a case will be filed in the specified court etc.
 SALES INVOICE
Ideally, this sales invoice must be in triplicate.

a. The original must be given to the customer;

b. The duplicate must be given to the accounting
department for recording, and
c. The triplicate will be left in the booklet for the
cashier's copy. When the book- let is fully used up, this
booklet will be surrendered to the accounting depart
ment for filing and for audit purposes only.
 DAILY COLLECTORS REMITTANCE
FORM

This is the summary of the collection made by a

specified collector for the day. This will be submitted
to the office cashier together with the duplicate copy
of the provisional receipt.
 DAILY COLLECTORS REMITTANCE
FORM

Ideally, the daily collector's remittance form will be:

a. the original copy together with the duplicate will be
submitted to the office cashier;
b. the duplicate copy will be copy furnished without
the duplicate copy of the provisional receipt to the
accounting department for recording purposes and
audit purposes.
As the company grows bigger, there will be more forms
and documents depending on the need to control cash.
Here are some tips in formatting forms and documentary
evidence:

1. What are the information necessary so that the various

concerns of the control aspects could be addressed:
a. date
b. serial number
c. is it thru manual operation or mechanical operation
d. purpose
2. How big will these forms be
3. Filing
4. Distribution
5. The responsible employees who will handle it .
The above illustration gives the learner a glimpse of the
importance in documenting cash. This means that the
bigger the cash, the bigger the risk and the more control
measures should be implemented.

The documents, like the provisional receipt and the

official receipt, must be registered with the Bureau of
Internal Revenue and this must be kept by a responsible
officer of the com pany to avoid misuse or using it
maliciously for one's personal gain.
 REFLECTION
If you are the fund manager of a boutique -
what are the types of business documents
will you use? How about if you are the fund
manager of a large department store, what
types of business documents will you use?
IV. HOW IS CASH HANDLED?

Next will be our knowledge about

the various duties and
responsibilities of the people that
have related functions with cash
handling.
 POSITION : COLLECTOR
DIRECTLY REPORTING TO:
Daily Duties:
1. Reviews the accounts receivable
that are due for collection on that
day.
2 Follow ups thru phone calls/email.
3. Issues provisional receipts to
customers who paid their respective
accounts.
4. Remits collections to the office
cashier together with the daily
remittance form fully filled out.
Responsibilities:
1. Early or on time collection of
the various accounts entrusted
to him for collection.
2. Report to the supervisor
about the customers who are
difficult to collect from.
3. Report any feedback from the
customer so management can
address the concern as early as
possible.
Position: cashier
Directly reporting to:
1. Issues official receipts to all cash received by the
company.
2. Issue official receipt to all check deposits made by
customers.
3. Deposits all cash collections up to 12noon, within the
day and all cash col- lections after 12 noon, the following
banking day.
4. Prepares the daily cash position report.
5. Payments from the entire fund he/she is entrusted to
keep.
6. Requests replenishment of fund within the policy set.
Responsibilities:
1Safe keeping of the cash collection.
2. Good relationship with bank personnel. 3. Maintenance of all fund
entrusted.
4. On time release of all check payments.
5. Placement of short-term investments.
6. Termination of short-term investments.
Files to maintain:
1. Copy of the daily cash position report
2. Copy of the validated deposit slip
Position: Junior Accountant
Directly reporting to

Daily Duties:

1: Receives report from cashier.

2.Journalizes the cash receipts as evidenced by the daily cash position
report.
3. Have it checked by the internal audit group and approved by the account-
ing supervisor.
4. After approval, forwards the cash receipt journal to the general
accountant for the recording of the transaction.
5. Prepares the check voucher for payment of various accounts of the
company. This will include the required routinary government contributions
such as Social Security System, Phil Health and Pag-ibig.
6. Have it checked by the internal audit group and approved by the
account- ing supervisor
7. After approval, forwards the check voucher and the check payment
to the cashier for proper release procedure.
Responsibilities:
1. All vouchers whether receipts or payments are done during daytime
otherwise, file it in the unfinished work file so that in case the staff is
on emergency leave, work can be done by other members of the
accounting department.
2. Report all problems to the accounting supervisor so that the concern
can be addressed properly.
Files to maintain:
Copy all the vouchers prepared for reference and audit.

Position
Directly reporting to
Daily Duties:

Recording of transactions in the various books of accounts of the company.

Periodic Duties:
1. Prepares the trial balance.
2. Prepares the working paper.
3. Prepares the financial statement.
4. Prepares the bank reconciliation statement.
5. Prepares suggested adjusting entries, have it checked by internal audit group and
approved by the authorized officer of the company.
6. Prepares Certification of SSS, Philhealth & Pag-ibig Contribution of the employees
once requested.
Responsibilities:

All entries made in the books of accounts are checked and approved by
authorized officers of the company.
Files to maintain:
1. Books of accounts
2. Original vouchers and documents
3. File of SSS, Philhealth & Pag-ibig Contributions.
Position: accounting supervisor
Directly reporting to
Daily Duties:

: Accounting Supervisor
1 Supervises accounting department personnel.
2 Approves all vouchers prior to entry in the books of accounts.
3 Analyzes the various reports coming from various departments to
countercheck the reports generated by the accounting department.
Periodic Duties:
1. Checks accounting reports.
2. Reports the result of operation to the Board of Directors.
Responsibilities:
Financial Reporting
1. Tax Reporting
2.Files to maintain:
1. Accounting Reports
2. Income Tax Payments
Position
: Internal Auditor
Directly reporting to
Daily Duties:
Checks the documents coming from the cashier and from the Junior
Accountants
Periodic Duties:
1. Conducts post audit of the documents and reports.
2. Conducts compliance audit. This is an audit check on the compliance of
the existing system of internal control installed by the company.
3. Evaluates of certain internal control mechanisms for enhancing its
operation and asset safely.
Responsibilities:
1. See adherence of all policies and procedures by various personnel of the
company.
2. Asset protection.
Position: Internal Auditor
Directly reporting to
Daily Duties:
tant
Checks the documents coming from the cashier and from the Junior Accountant
Periodic Duties:
1. Conducts post audit of the documents and reports.
2. Conducts compliance audit. This is an audit check on the compliance of the
existing system of internal control installed by the company.
3. Evaluates of certain internal control mechanisms for enhancing its operation
and asset safely.

Responsibilities:
1.See adherence of all policies and procedures by various personnel of the
company.
2. Asset protection.
These are the following control measures so that
cash will not be abused:

1. The VP for Finance should establish the policy on

cash handling.

2. From the policy established, the head of the

accounting department should prepare the
procedure.

3. The implementation of the procedure is subject

to the review and audit by the internal audit group
or department so that continuous improvement on
the control mechanism may be done to address the
continuous and fast changing technology of the
company.
V. HOW IS CASH
PROCESSED?
The policy set up must feed back
potential errors to management. Here
are samples of the policy on cash:

Policy on Cash Handling:

1. The company should adopt the

imprest system of handling cash.

2. The company should maintain the

combo account for easier tracking of
banking transaction.
3. The company should place its money in various
banking companies so as to distribute the risk
involved in banking.

4. The following bank signatories will be observed:

a. If the amount of the disbursement is P50,000
and below the following will be the check signatories:
The Comptroller or head of the accounting
department and to be countersigned by Treasurer or
VP Finance.
b. If the amount of the disbursement is more than
P50,000-the following will be the check signatories:
The Comptroller or head of the accounting
department and to be countersigned by the Treasurer
or the President.
5. Official receipts can only be issued when cash is
received. Check payments received from
customers or other person or company will be
covered by provisional receipts.

6. All funds should be kept and maintained by the

office fund custodian. For the petty cash fund, the
custodian should request replenishment once the
fund is at least 40% used to avoid disruption of
operations due to insufficiency of the fund.
Procedure in Cash Handling:

1. The cashier upon receiving cash

from the customer or the company
collector will issue an official receipt.

2. The cashier will also issue an official

receipt for check deposits that are
already cleared in banking system.

3. The cashier will deposit the cash

collection up to 12noon of the current
day intact within the day and money
collections after 12noon will be
deposited intact the following banking
day.
4. The cashier will then prepare
the daily cash position report.

5. The official receipt issued

together with the validated
deposit slip and the original copy
of the daily cash position report
will then be forwarded to the
accounting department for file
and the preparation of the
appropriate accounting entries
and for eventual entry in the
books of accounts.
VI. COMMON MISUSES OF
CASH.
1. Lapping-This is a case of misappropriating a collection
from one customer and concealing this defalcation by
applying a subsequent collection made from another
customer.

2. Kiting-This happens when a check drawn from one

depository bank and depos ited in another depository
bank at the end of the month or year. There will be no
entries made on this drawing and depositing.

3. Fraudulent documents and evidence. Some employees

will make documents and pieces of evidence which are
not really true.
VII. HOW IS CASH CONTROLLED?

Managing cash means control and direction. Without

your in-depth knowledge of the cash environment
discussed earlier, your control is a matter of hit and miss.
With the fast phase changing technology, each company
must be competitive and ready to address the barrier that
will come across the operating firing line. The resources
like people, cash and equipment must be placed in its
proper perspective so that the company is ready to attack
its competitor with high degree of ethical standards of
doing business.
Here are some good practices in managing cash:

1. Establishing good relationship with the bank

officer. This is a key to getting better interest rates
in time deposits.

There are some banks that offer very short-term

time deposit investments like:

a. Overnight placement. Just place your excess

money during the day to an overnight placement
and terminate it the following day. In such case,
you have maximized the earning potential of the
company's money. Anyway you will not be using
the money overnight.
b. One week time deposit placement. The reason for this is
that the excess money could earn more while waiting for the
releasing of check payments to creditors and payees.

c. Enter into a 30-day short term investments-depending on

the cash needs of the company. Under this classifications,
you could either get treasury bill or treasury warrant or
treasury note. There are two basic differences between a
time deposit and that of the government notes, these are;

1. The time deposit is a product of the bank and liability is in

the bank while the government securities are
government products course thru the banking system for
eventual selling and are the liabilities of the government.
2. The time deposit is covered by the Philippine deposit
insurance coverage of P250,000 while the government
notes are covered and backed up by the Philippines
government.
 3. The interest of a time deposit can be received at the
date of maturity while interest from government securities
can be received at the date of placement.

Please take note that the following investment will no

longer be a part of a company’s cash account as defined
earlier, that is the generally accepted accounting principle.

d. If we have any excess cash, while wanting for bigger

investment yield, we can place it in a long term investment in
time deposit that will yield bigger interest and assure of a
steady rate return of our money. This is especially good in
times of fast charging environment where cost of money is
very volatile. Just make sure that you have availed of the
government securities and time deposit terms that are pre-
terminable without sacrificing the interest yield.
e. If we have found a good permanent investment that will
make better yield, then you can pre-terminate and invest it in
that higher yielding investment portfolio.

2. Identifying the various books where these cash

transactions were recorded in comparison with the various
reports prepared.

3. Routine audit procedures to counterchecks the books and

reports there is the employee’s duties, so that there will be no
overlapping of functions and strict adherence to company’s
policies and procedures.

4. The preparation of strategic planning, (more than one year

to three year planning).
5. The preparation of a medium-term development plan (three
year to five year planning).

6. The preparation of a long-term development plan (more than 5

year planning and consider the future of the company in carrying
its vision/mission).

The starting point actually will be the preparation of an

annual budget which most of our business entrepreneurs are
doing ad preparing every year. Although the budget covers only a
small portion, this will be a very good starting point by we can
improve and prepare the strategic planning.
 Industry Practice

Maintaining good relationship with the bank could benefit the

company in many ways. Say for example, the closing tome is 3pm.
Can the company still make deposits even after 3pm? Yes, if you
have a good liaison with the bank officers and employees.
Sometimes, we are caught in between; I mean the company’s money
will just be idle in the hands of the supplier because the collection
was set already by the supplier every Friday after the banking hours
of 3pm.
 Industry Practice
If this is the style of your supplier, then open an account with
the bank where your supplier is maintaining its account. Then, make
an agreement with the bank officer to allow you to deposit on a
special case even after 3pm. If the company is maintaining an
account with the supplier’s bank, this can be considered as cash
deposit and therefore you can place it under a time deposit for two
days, i.e., Saturday and Sunday and you can use it in your operation
on Monday.

If you will do this because you do no not have enough money for the
compensating balance which banks normally requires, you can apply for bills
purchased.
WHAT IS BILLS
PURCHASED?

It is a form of discounting, but

again if have a good liaison with
the bank officer, this can be
waived. Bills purchase would only
mean that the bank can make
your check deposit good as cash
deposit so you can use it
immediately for your operations.
WHAT IS
EARMARKING?

Earmarking is an old terminology

used many years back. Now the new
term is used in the banking system is
confirmation ofdeposit. When you have
doubts on the dated check you are
holding on whether it is funded or not
you may call your bank and as it to
confirm the check. Your bank will then
confirm your check deposit with the
bank of the payor so you will be assured
that the check deposit will not bounce.
BOUNCING CHECK
MEANS THAT THE CHECK YOU RECEIVED
WAS NOT FUNDED AND THEREFORE WILL
NOT BE CLEARED IN THE BANKING SYSTEM.

The increased knowledge and the

fast phased changing technology makes
our generation a little comfortable in
managing our cash.
The Security bank and trust
company for example is offering the DIGI
Banker. This product offers the company
direct access to their account with the
bank. So instead of asking our staff to
queue in the bank daily, we can make
transfers in the comfort of our office.
 REMEMBER
Cash, as an account tittle, must be known
and used in an orderly manner. As you finish
your learning in this chapter you have to
take note of the following items in managing
cash so your company can achieve optimum
results:
 REMEMBER
1. In managing cash, you have to learn the
different accounts to open and funds to set
up. In this way, you will maximize the various
advantages of these things and minimize the
risks of mishandling cash.

2. In managing cash, documents are a must

because accounting is objective.
 REMEMBER
3. In managing cash, people should be oriented
about its role in the account. Their duties and
responsibilities are vital for the achievement of
the company’s goal of minimizing risk and
maximizing opportunities.

4. In managing cash, the company should have

good representation with banking and financing
companies so that it can get the best investment
opportunities.
THANK
YOU!