Models Cash Management Accounting That Can Benefit Your Business

financialtreat – will explain Models Cash Management Accounting That Can Benefit Your Business that you will get in the following article. let’s look at this article carefully!

Cash management accounting is the process of managing and collecting cash flow in order to achieve optimal cash flow. In the definition of cash management, the form of cash is in the form of cash, checks, deposits, demand, and cash bonds. Cash is the main asset used to fund the company’s liabilities.

Understanding good cash management accounting in business is the key to the company’s financial stability. When you start doing business, your company will experience a turnover of cash inflows and outflows in the financial statements that must be managed carefully.

Models Cash management accounting That Can Benefit Your Business

The cash flow statement consists of three parts, namely operational, investment, and financing. It can be said that in budget management there are also cash flow financial statements. The cash flow statement serves to record all cash flow turnover in the company, including cash receivables, accounts payable, cash payments, and money invested. The cash flow statement consists of three parts, namely operational, investment, and financing. Operations are the busiest activities, while the other two are related to cash inflows and cash outflows.

Cash Management Accounting Objectives

The need for cash management is based on the importance of weighing every risk taken by the company so that cash flow remains balanced. If you invest too little, the profit you get is too little. If there is too much investment, cash insolvency is expected.

The purpose of cash management consists mainly of two elements, namely liquidity and earning. Liquidity is the company’s ability to pay off its obligations (accounts payable, dividends, taxes) at a certain time. In cash management purposes, the company’s liquidity and cash flow are kept balanced.

While earnings are intended to predict cash issued to generate greater profits. Therefore, the purpose of cash management here is to ensure that cash payments are recorded correctly.

Cash Management Model

In terms of cash management, there are also two cash management models that are usually use by business people, namely:

Model Baumol

The emergence of the cash management model was first initiate by Baumol, so it is known as the inventory model (Baumol model cash management). The formula of the Baumol model is:

Q : optimal cash balance

F : fix transaction fee

T : total cash needs for one period

I : Interest rate in one period

The Baumol model emphasizes on maintaining optimal cash balances to meet the company’s obligations, on the other hand pursuing profitable investment opportunities. When the remaining reserve cash balance is small, the company will experience liquidity. Meanwhile, if the reserve cash balance is excessive, the company’s opportunity to invest will be lost.

Let’s look at one example of Baumol’s cash management model. In a company, the use of cash every year is Rp.1,200,000,000.  The interest rate on securities is 12% per year while the transaction cost of converting securities into cash is Rp 50,000. To calculate the conversion of the amount of securities into cash using the previous formula.

Example of cash management baumol model

Conclude in the example of Baumol’s cash management model, the company must sell securities for 31 million rupiah.

Model Miller Orr

The second cash management model was propose by Merton H. Miller and Daniel Orr. They argue that there will be times when the company has excess cash, as well as a cash shortage. While your business may have non-cash means of payment, the Miller–Orr model advocates withdrawing cash when the surplus investment exceeds normal levels. An example of the Miller-Orr model cash management can be seen in the following graph.

Z : cash distribution

UL : maximum level

LL : minimum level

RP : cash refund point

Companies should not invest until they reach the maximum level. Therefore, a cost budget plan is need so that financial boundaries and allocations can be clearer. This limit is lowere by increasing the minimum limit times the cash distribution limit (Z).

Not only learning and understanding cash management flow, it is very important for business actors to help the task of the finance and administration team to be simpler, accurate, and faster.

Cash management method is?

There are 2 (two) effective cash management strategies for good cash management, namely:

1. Receipt of Money

The company’s money receipts can come from several sources, including cash sales, repayment of receivables and loans. Five cash management procedures that can be use include:

  • It should be clearly indicate the function of cash management in cash receipts.
  • Any cash receipts must be immediately recorde and deposite into the bank.
  • Perform a management function that separates the function between cash management and cash recording functions.
  • Carry out the next cash management function, namely the application of strict supervision / control and discipline to the cash receipt and recording function.

2. Spending Money

The company spends funds or money to pay for various transactions. If the implementation of cash management is not carry out strictly, sometimes there is cash abuse by increasing the amount of expenditure and the difference is embezzle. Here are some good cash management procedures relate to spending money:

  • All money expenditures use checks, except for minor expenses paid from petty cash.
  • Determine the amount of petty cash and monitor its use closely.
  • Check writing is only done if it is supporte by complete evidence (documents) or in other words a voucher system is use.
  • It is separate between people who collect proof of expenditure, who write checks, who sign checks and who record cash expenditures.
  • Make a daily cash report.
  • Conduct internal audits with unnecessary timeframes.
  • Conduct internal cash taking audits regularly, for example every week with an undisclose implementation time.

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As we know, Cash has a nature that is very easy to transfer and cannot be proven by the owner, so cash is easily embezzle. For such reasons, it is necessary to implement discipline cash management.

One of the applications of a good cash management system for cash is to separate the functions of storage, executor and recording. Without such a separation of functions, it will be easy to misuse and embezzle cash.

The cash management system (cash management) between one company and another company varies. It usually depends on the form and type of company. But, in general, the purpose and function of cash management have the same basics that can be use as cash management guidelines.

And if you want to receive your company’s financial statements sort out? Don’t worry, now there are also many financial statement making services at affordable prices that are done by experience professionals in accounting. Good luck!

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