1.0 Introduction
Business enterprises, whether involved in production or service, are using funds to maintain the cycle of the business. The funds can be from the owner’s capital, financial sources and the profits that are not withdrawn and added to the financial fund of the business. If the business enterprise is small, it doesn’t mean that an entrepreneur should not provide any controls on his fund because the business may fail to survive if there is no effectiveness in handling the cash.
1.1 Statement of the Problem
In the start of the research, the study has an idea on how a leader can measure the effectiveness of cash control when it is applied on his business. From the past years, economic crisis hit the different country and pushed the businesses, more specifically the small business, to close down their business. This issue gives rise to the idea on how the owners or managers handle the outgoing and incoming cash of the business.
1.2 Purpose
The main purpose of the study is to guide the entrepreneurs and restate the importance of cash control and its effectiveness. It aims to bring back the traditional control applied by many of the successful entrepreneurs or business tycoons in the world. Moreover, the study seeks opportunity to teach the existing and the new small business entrepreneurs in application to the cash control as well as communicating with their different financial sources.
1.3 Significance of the Study
The study viewed its importance in delivering the right techniques on how to handle the control in cash. In addition, the study plays an important role in explaining the different applications on cash control and the right action to avoid the draining of the internal fund. The study also assumed that the ideas found in the research will contribute to the popularity and growing business of small business enterprise.
1.4 Research Question and Hypotheses
The research study is focused on identifying the answers on the following question:
a. What is the importance of cash control in small business enterprise?
b. What are the evidences that the cash control is effective?
c. What are the techniques being applied to have effective cash control?
As part of the assumption, the study can determine the different elements involved in determining the effectiveness of the cash control in the small business enterprise. Therefore, the conclusion after the study will create a great impact in the sustainability of the control inside the small businesses.
2.0 Literature Review
A small business has an opportunity to enter in an economic system that is free of competition. The development of the small business enterprises is encouraged through different business explorations (SBA, 2004). In addition, the growth of the small business enterprises is possible if there is an internal control in cash management (Arestis and Sawyer, 2004). Usually, managers are the primary responsible in identifying financial and operational risks in the business. Therefore, they are also responsible in the internal control, especially in cash management. The applied control activities are enumerated as preventive and detective controls. These controls can be adopt in the small business enterprise in terms of approvals, authorization, and verification, reconciliations, performance reviews, security of assets, and segregation of duties (Wiley Inc., 2007; Sampson, 2008).
2.1 Definition of Terms
Free Competition – means only through the full and free competition can free markets, free entry into business, and opportunities for the expression and growth of personal initiative and individual judgment is assured (SMA, 2004).
Control Activities – actions that are supported by policies and procedures that are carried out properly and in timely manner to manage or reduce risks.
Preventive Controls – kind of controls that attempts to deter or prevent the undesirable events from occurring.
Detective Controls – kind of controls that attempt to detect the undesirable acts.
Approvals, Authorization, and Verification – all are part of the preventive control that usually in a sequence of manager’s authorization to perform with specific approval from supervisor to perform such duty after the series of validation regarding to the transaction.
Reconciliation – part of the detective control in which an employee relates data to one another, identifies and investigates the differences, and takes corrective action if necessary.
Performance Review – another kind of detective controls regards to the performance of the firm in terms of budget, forecast, and other related reports.
Security of Assets – both preventive and detective control that accounted the assets involved in the business in actions for accessibility and security.
Segregation of Duties – part of preventive action to avoid the risk and error among its people.
3.0 Methodology
The effectiveness of the cash control system being applied in some small business enterprise can be determined if the questionnaires containing the applied techniques of the managers or the owners on the cash management are revealed. Prior to that, the researchers will conduct further observation about the performance of the business in actual handling of cash and other related transactions.
3.1 Restate Purpose and Research Question
Once again, the purpose of the study is to guide the entrepreneurs about the importance and effectiveness in cash control. The review on questions about the cash control is enumerated as the importance, applied techniques, and the evidences for an effective cash control.
3.2 Population and Sampling
The small business enterprise can be taken in the community where there are great numbers of small businesses.
3.3 Analysis Plan
From the data gathered, an analysis can be created and as result, the importance and applied techniques can be determined. Cash control is important if evaluation of the firm’s performance in the market. But the most important of the function is recognizing the presence of fraud inside the management. Furthermore, an effective cash control can increase the speed of collection receivables; keep inventory levels low, and proper timing in paying the liabilities, expenditures, and additional investment.
3.4 Validity and Reliability
The study is valid and ensures the reliability in defining the internal control and process as it reveals the effectiveness and efficiency on the operations, compliance on the applicable laws and regulations, and in assessing the risks involved through monitoring (Michelman and Waldrup, 2008).
3.5 Scope and Limitation
The scope of the internal cash control in small business enterprises is in the matter of the degree employed in business. There is reasonable assurance on safeguarding the assets, reliability of the financial information, and with the compliance on laws and regulations. Therefore, the reasonable assurance has a concept in developing and managing the practice to ensure that the business objectives in cash control are met. The small business may impose certain limitations such as difficulty in applying the segregation of duties and internal verification. But the most important idea in cash control is to minimize the existence of fraud through conducting cash control procedures.
References:
Arestis, P., & Sawyer, M., 2004. On the Effectiveness of Monetary Policy and of Fiscal Policy. Review of Social Economy, Vol. 62, No. 4
Michelman, J., & Waldrup, B., 2008. Improving Internal Control over Financial Reporting. The CPA Journal, Vol. 78, No. 4.
Sampson, D., 2008. Understanding Internal Controls: A Reference Guide for Managing University Business Practices. [Online] Available at: http://www.ucop.edu/ctlacct/under-ic.pdf. [Accessed 12 Jan 2010].
SBA, 2004. Small Business Act. [Online] Available at: http://www.sba.gov/regulations/sbaact/sbaact.pdf. [Accessed 12 Jan 2010].
Wiley Inc. 2007. Internal Control and Cash. [Online] Available at: http://www.csulb.edu/~mdchase/500CashandInternalControl.pdf. [Accessed 12 Jan 2010].
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