Cash normally

Cash normally includes general cash accounts, payroll accounts, petty cash fund, saving accounts, marketable securities and other cash equivalents such as money market funds, certificate deposit, saving certificates and other similar types of deposits.

1. Receipt and payment of cash is a significant part of an independent financial statement audit. This is because these receipts and payments affect almost all accounts relating to the income and expenditure and a number of asset and liability accounts. On other hand, the liquid nature of cash increases the risk of undetected fraud. The auditor has to recognize this factor in developing appropriate audit program accordingly.

The organization’s regular cash receipts and disbur sements are processed through this account. In some cases, the receipts arereceived directly by the bank through a lockbox or electronic funds transfers (EFT) and are directly deposited in the client’s account by the bank.

Cash management techniques are designed to speed up the collection and deposit of cash while reducing errors and fraud, minimizing paperwork, and automating the process. Lockboxes, electronic data interchange, cash management agreements with financial institutions, and compensating balances are four important techniques. Lockboxes are a system in which customers are instructed to send payments directly to a specific post office box number, which is a depository at the organization's banking institution. The bank receives and opens the remittances, prepares a list of cash receipts by customer, credits the client's general cash account, and notifies the client about the transaction details. Electronic Funds Transfers (EFT) allow cash transfers to be made automatically and instantaneously without the use of checks. Financial institutions also provide automated services such as cash management programs to their clients. Finally, compensating balances involve maintaining a specified balance in a non-interest-bearing account to secure a pre-negotiated loan available for use when needed. Companies are required to disclose compensating balance arrangements and their effect on the effective rate of interest if the amounts are significant.

Lockboxes are a cash management technique that facilitates the collection of cash and reduces the possibility of fraud. Customers are instructed to send payments directly to a specific post office box number, which is a depository at the organization's banking institution. The bank receives and opens the remittances, prepares a list of cash receipts by customer, credits the client's general cash account, and notifies the client about transaction details. Lockbox arrangements offer several advantages for the audit client, including the immediate deposit of cash at the bank, the shifting of manual processing tasks to the bank, and the ability to establish lockboxes in different geographic locations to speed up the receipt of cash and earn a return. The financial institution performs the processing for a fee, and the client's personnel use the data sent by the bank to update cash and accounts receivable.

Electronic Funds Transfers (EFT) are a popular cash management technique adopted by many organizations, whereby cash transfers are automated and instant without the need for checks.

Financial institutions offer cash management programs as part of their services, which help automate the cash management process for their clients.

Compensating Balances is a technique whereby a company is required to maintain a specific balance in a non-interest-bearing account with their primary financial institution. This balance is used to offset the pre-negotiated loan or line of credit that the institution provides to the company. If the compensating balance is material, the company must disclose this arrangement and its effect on the effective interest rate.