Page 404 - Business Principles and Management

Chapter 15 • Business Financial Records

FIGURE 15-1 Safe and Accurate Handling of Cash in a Business

1. A petty cash fund, a supply of cash maintained in a business for small
emergency payments, should be kept in a safe place with a responsible
person. A written record of additions and withdrawals to the fund should
be maintained.
2. A specific policy and procedures should be followed if small cash
withdrawals from a cash register are allowed. A written form must be
completed, signed by the person making the withdrawal, and placed in
the register.
3. Cash registers should have a daily change fund of a specific amount to
start each day’s operations. A procedure to collect, count, and verify cash
register receipts should be followed on a regular schedule at least daily.
Any overages or shortages should be accounted for each time the cash
balance is verified. Two or more people should work together to collect
and verify cash register receipts.
4. All cash receipts should be counted, recorded, and immediately deposited
in a bank. Do not keep large cash balances in the business. Make deposits
in a bank frequently, several times a day if necessary.
5. Endorse all checks when received for deposit either with a cash register
imprint or a rubber stamp.
6. All payments except petty cash amounts should be made by check or credit
card so a written record is maintained.
7. Pay salaries by check or direct deposit, not cash.
8. Audit all cash receipts, payments, and deposits regularly and compare
them with financial records. Reconcile bank statements as soon as they
are received. Business records and bank records must be in balance. Any
discrepancies must be resolved immediately.
Businesses need to plan for
the replacement of expensive
equipment that will lose their
value over a number of years.

The value of an asset decreases through use over time. This gradual
loss of an asset’s value due to age and wear is called depreciation. For
example, a Jiffy Lube franchise owner buys a computerized diagnostic
tool that costs $16,000. The owner knows from experience that at
the end of five years the equipment will not be worth any more than
$1,000. The owner estimates, therefore, that the equipment will wear
out or depreciate at the average rate of $3,000 a year:
$16,000 $1,000 $15,000 value lost
$15,000/5 years $3,000 depreciation per year
When the diagnostic equipment loses its usefulness, it must be re-
placed. Therefore, depreciation represents a cost to the business.
Fixed assets are expensive assets of a business that are expected
to last and be used for a long time. Buildings, land, and expensive
equipment are common examples of fixed assets. Except for land,
fixed assets depreciate over time. A business records the value of
fixed assets on its books when it purchases them. They become part PHOTO: © BANANASTOCK.
of the property the business owns. As the assets wear out or become
less valuable, the business is allowed by law to charge the loss in value
each year as an operating expense.

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