All businesses should have internal controls to deter fraud, detect theft, and preserve assets. Of all the assets, cash is the easiest to misappropriate. Effective internal controls for cash prevent the proverbial hand in the cookie jar.
Vigilance with Monitoring Cash
Vigilance with monitoring cash is the process of taking ownership of the cash situation in your small business. This entails a good internal control system with accounting, communicating with customers and vendors, and matching cash resources to the appropriate expenditures.
Accrual accounting is the preferred method of accounting for all business operations. Any publicly traded company must comply with the principles of accrual accounting. Small business operations can choose between cash and accrual accounting for their records. Although cash accounting is the easiest to work with as a small business operation, accrual accounting will provide a more accurate picture of the financial status and affairs of any business operation.
In business, liquidity is defined as the period of time it takes to turn assets into cash. It takes 20 minutes to turn the balance in the checking account into cash. You head on down to the bank and present a check. You get cash. But most businesses run on just more than the cash in the bank account.