Sign Up Now
Get instant access to over 1 million+ study documents
OR
Already registered? click here to login
By creating your account, you agree to our terms of service, privacy policy and student honor code.
¶ … friend who is in a position of authority in a company should be aware of all accounts that the company has in the bank. Just because he is not a CEO or CFO in a company doesn't mean he should be ignorant about banking, about what is profit and what it is not, and how to reconcile money in the bank. Just having money in the bank means nothing unless what in accounts is fully vetted and understood in an ongoing flow of cash in and out.
Banks and Cash Management
The main reason for business failure is "poor cash management," according to Findlaw.com; poor cash management is also likely the "most frequent stumbling block" for those who go the entrepreneur route in business. Hence, understanding the very basic concepts of cash flow can help that person in the Introduction who has no clue as to whether the money in a bank account is profit or not.
Cash vs. cash flow: Cash in the bank is money, but it is not inventory, and it is not what you are owed by others (accounts receivable) -- and, money in the bank is not property (findlaw.com). Accounts receivable can in time be converted into cash, but it cannot be used in normal circumstances for paying bills, for example, paying suppliers or venders. Cash is what a company has on hand to keep the business running, but cash in the bank is not categorized as "profit"; in time, profits are "of little value if they are not accompanied by positive net cash flow" (findlaw.com).
Cash flow alludes to the movement of cash into and out of one's business. It is vitally important for the person in the Introduction to understand that keep a close eye on cash inflows and outflows is one of the " ... most pressing management tasks" for anyone in business (findlaw.com). Cash outflow refers to the money used (usually by check) to pay company salaries, to pay vendors and creditors (like banks, in case the company has a mortgage with a bank). On the other hand cash inflow reflects the money received from investors, customers, and lenders.
Positive cash flow: Having a positive cash flow means that the inflow has...
The important point here is that the manager or employee in charge of cash flow issues must know why there is a negative cash flow. That is, is the "accounts receivable" portion of the ledger not up to where it should be because customers have not paid their bill and there has been a poor job of collections? Or is it possible there is too much "obsolete inventory" -- and someone in the company has fallen down on the job of moving inventory off the cash flow pages?
Understanding the 3 components of cash flow (Findlaw.com)
Operating cash flow: This is what companies know as "working capital," the cash coming in to the company from sales of the product or the service that the company generates as the natural part of its business function.
Investing cash flow: When a company invests in the infrastructure of its own plant, or in equipment, or it invests in other "fixed assets," and uses cash that is outside of its normal day-to-day operations, it is called investing cash flow.
Financing cash flow: In this case, financing cash flow is cash "to and from external sources," like lenders, shareholders, or investors. Cash used to issue stock a paying a dividend to a shareholder falls under the financing cash flow category.
Practicing good cash flow management begins with a "cash flow projection," which smart business owners and entrepreneurs understand means both short-term (monthly or even weekly) and long-term (up to 3 to 5 years) cash flow. This helps when it comes to managing daily cash flows, and provides clear numbers when it comes to meeting business needs.
What is the difference between cash flow and profit? A simple way to justify income and expense for a company is to note that if " ... income exceeds expenses, there will be profit, but only if there's enough income to cover expenses"…
Works Cited
Accounting Coach. (2012). Bank Reconciliation. Retrieved November 11, 2015, from http://www.accountingcoach.com.
Basic Accounting Help. (2010). Basic Accounting Concepts / Foundation of Basic
Accounting Concepts. Retrieved November 11, 2015, from http://www.basicaccountinghelp.com.
Findlaw.com. (2011). The Importance of Cash Management. Retrieved November 11, 2015,
From http://smallbusiness.findlaw.com.
2015, from http://www.bizfilings.com/toolkit.
Some reasons for differences arise due to checks that are issued but are not yet presented by the receiver, checks that have been sent for collection but are not yet collected, bank fees and charges, checks dishonored by the banks, interest paid by the bank on the balance, direct payments made into bank, cash payments and bills that are rebated by the bank. To avoid these discrepancies, a bank
From its creation to 1988 it undertook banking functions and opined generally on the international banking system. 2. Starting in 1988 it began to assume the role of an unofficial international bank regulator. Although it had no official international status, its members -- central banks of the major banking countries -- were obligated by the nature of their membership to abide by its edicts and the rest of the world
Under the arrangement, moreover, a country with efficient production and a favored competitive position (including as enhanced by new capital goods) is rewarded with rising income and reduced unemployment. No grand scheme of state or international planning and direct control is required. Exchange rates are for the most part fixed under the classical gold-flows mechanisms (say, $/£ const. within fixed limits), as stated, and adjustments to trade imbalances
As a result of the draft, the unemployment rates which had been at record low levels, was able to right itself. Once again, the U.S.'s industry-based economy was able to flourish with new needs to produce and manufacture goods and products to be used globally. The secular tendencies in economic policy responsible for this revival would be continued for several years to come. Predictably, the end of fascism which concluded
Forming a Bank Holding Company - Structure, Governance, and Regulations Understanding Banks Forming and Expanding a Bank Holding Company Financial Holding Company Requirements BHC Regulations Capital Building Options for Bank Holding Companies Pros and Cons of Forming a Bank Holding Company Stocks and Governance Corporate Governance and Banking Law The Role of Bank and Holding Company Audit Committees Data Gathering Method Database of Study Summary, Conclusions and Recommendations Forming a Bank Holding Company - Structure, Governance, and Regulations This research paper describes the process
Internal controls are "methods put in place by a company to ensure the integrity of financial and accounting information," and to protect the organization's assets from misappropriation by internal sources (Investopedia, 2013). Internal controls help to prevent fraud, but they also allow the company to have reliable data on all transactions, which can be used for any number of control purposes. Further, internal controls promote operational efficiency and they encourage adherence