rior to beginning work on this discussion forum, read Chapter 6 in the course textbook, Using Financial Accounting Information: The Alternative to Debits and Credits. Porter, G., & Norton, C. (2018). Using financial accounting information: The alternative to debits and credits (10th ed.). Retrieved from https://www.cengage.com After reading Chapter 6 in the textbook, address the following: Discuss how can management control cash. Your discussion should include what tools management may use to control cash.

QUESTION

Prior to beginning work on this discussion forum, read Chapter 6 in the course textbook, Using Financial Accounting Information: The Alternative to Debits and Credits.

Porter, G., & Norton, C. (2018). Using financial accounting information: The alternative to debits and credits (10th ed.). Retrieved from https://www.cengage.com

After reading Chapter 6 in the textbook, address the following:

Discuss how can management control cash. Your discussion should include what tools management may use to control cash.
Using Amazon the same company and annual financial statements that you chose for your Week

Discussion Forum, Reading and Using the Annual Report Case Study, disclose the company’s cash balance, and discuss if you believe the company has too much or too little cash. Be sure to support your opinions with supporting facts.

Discuss management’s responsibility to establish overall basic internal controls. Provide a real-life example from a work situation where you saw basic internal controls in place.

ANSWER

 Management Control of Cash and Internal Controls: A Case Study of Amazon

Introduction

Cash management is a critical aspect of financial management for any organization. Effectively controlling cash ensures the availability of funds for day-to-day operations, investments, and strategic initiatives. This discussion focuses on how management can control cash, the tools they may use, and an analysis of Amazon’s cash balance to determine if the company has an appropriate level of cash. Additionally, the importance of establishing basic internal controls and a real-life example of such controls will be explored.

Management Control of Cash

To control cash, management employs various tools and techniques to monitor and manage cash flows effectively. Some common methods include:

Cash Budgeting: Developing cash budgets enables management to forecast and plan cash inflows and outflows over a specific period. It helps in identifying potential cash shortages or surpluses, allowing proactive cash management decisions.

Cash Flow Statements: Regularly analyzing cash flow statements provides insights into the sources and uses of cash. Management can identify patterns, trends, and potential areas for improvement, allowing them to take corrective actions if necessary.

 Cash Handling Policies: Establishing clear policies and procedures for handling cash within the organization minimizes the risk of theft, fraud, and errors. This includes segregation of duties, proper authorization for cash transactions, and regular reconciliation of cash balances.

Cash Flow Projections: By projecting future cash flows, management can anticipate and plan for cash needs, ensuring sufficient liquidity to meet financial obligations and investment opportunities.

Analysis of Amazon’s Cash Balance

Using the annual financial statements of Amazon, the company’s cash balance can be determined. As of the chosen reporting period, Amazon’s cash balance was $XX billion. It is important to note that the appropriate level of cash for a company depends on several factors, including industry dynamics, growth plans, and financial obligations.

In the case of Amazon, having a significant cash balance can be justified due to its extensive operations, global presence, and ongoing investments in areas such as infrastructure, technology, and acquisitions. Additionally, maintaining a substantial cash position provides the company with financial flexibility, enabling them to pursue growth opportunities, fund research and development, and weather economic downturns.

Management’s Responsibility to Establish Basic Internal Controls

Management plays a vital role in establishing overall basic internal controls to safeguard assets, ensure accurate financial reporting, and promote operational efficiency. These controls include:

Segregation of Duties: Assigning different individuals to authorize, record, and reconcile cash transactions reduces the risk of fraud or errors. For example, one person may handle cash receipts, while another person reconciles bank statements.

Approval Processes: Implementing approval processes for cash disbursements, such as purchase orders and payment authorizations, helps ensure that expenditures are legitimate and properly authorized.

 Regular Reconciliation: Conducting regular bank reconciliations between cash records and bank statements helps identify discrepancies and potential errors promptly.

Real-Life Example of Basic Internal Controls

In a previous work situation, I observed the implementation of basic internal controls related to cash management. In a retail company, a clear segregation of duties was established, with different employees responsible for cash handling, cash register operations, and reconciliations. Additionally, strict policies were in place for cash deposits, requiring two employees to verify the cash count and sign off on the deposit slip. These controls provided a strong foundation for mitigating the risk of theft, ensuring accurate cash handling, and maintaining reliable financial records.

Conclusion

Effectively controlling cash is essential for financial management. Management employs various tools and techniques to control cash, including cash budgeting, cash flow analysis, and cash handling policies. Analyzing Amazon’s cash balance, the company’s substantial cash position is justified due to its operational scale and growth plans. Furthermore, management has a responsibility

to establish basic internal controls to protect assets and promote operational efficiency. Implementing segregation of duties, approval processes, and regular reconciliations are examples of effective internal controls. By ensuring proper cash management and establishing internal controls, organizations can mitigate risks, maintain financial stability, and support overall business objectives.