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As the Global Project Consulting Group precipitates toward its IPO offering, It’s Chief Operating Officer is promoted as Vice President of Overseas Operation, leaving no one to oversee the financial operations. To update stakeholders on the status of the business and accounting information to make informed decisions, Global Project Consulting Group has asked the new acting Chief Financial Officer to prepare a memo to stakeholders, including the Board of directors, covering the following areas:

1. Balance of the Account
2. Sarbanes-Oxley Act of 2002
3. Cash Equivalents
4. Petty Cash Fund
5. Voucher

Memorandum

Date: 5/2/20

TO: Stakeholders

From: Acting Chief Financial Officer

Subject: Balance of the Account, Sarbanes-Oxley Act of 2002, Cash Equivalents, Petty Cash and Voucher

The Global Project Consulting Group finds it befitting to analyze its financial standing, and internal control mechanisms cater to openness, accurate recording, reporting, segregation of financial management, and compliance with federal, state, local, and international financial reporting standards.

We owe you a sense of gratitude for investing in Global Project Consulting Group. We also wish to say a special thank you to our people whose integrity, foresight, and hard work have continued to push us to achieve beyond expectations. Our retained earnings have grown upwards over $298 million despite seasonal changes in revenue intake.

We will continue to balance our books and create effective financial management systems that will attract business investors to our company. Our internal team consisting of cashiers, bookkeepers, cash register, assistant treasurer, petty cash custodian, are mobilized and re-trained to effectively and efficiently handle the balance sheet, petty cash management, cash equivalents, voucher and application of Sarbanes-Oxley Act of 2002 standards. Sox calls for responsible, clear, and concise accounting information in every aspect of our company operations.

Balance of the Account

The focal point of those who prepare and report financial information, including accountant and bookkeeper, is to balance the accounts –assets, liabilities, and owner’s equity -on the balance sheet. As table II shows, the total assets of $770,000 equal to the total liabilities and stockholders’ equity. Moreover, a trial balance, which is different from the balance sheet, is also prepared to maintain an accurate balance between total credits and total debits starting from assets, liabilities, and stockholders’ equity.

Financial data are recorded, analyzed, reconciled, and posted based on an accounting formula that says assets equal liabilities and owners’ equity in the business. To create the balance between assets, on the left side and equity plus owners’ equity on the right side of the equation, begins with recoding and describing financial information as accurately as possible. As indicated by table 1, accounting personnel group labels financial transaction, either debit or credit. These debited or credited pieces of information will then be grouped in their respective accounts before posting them on the balance sheet. Petty cash, for instance, maybe discretionally grouped into cash & cash equivalents account.

Assets account can be divided into two account groupings: short-term or current assets-assets the company can use as cash within 12 months and long-term assets-those assets that the company can use more than a year. Examples of existing assets are cash, short-term investments, accounts and notes receivable, merchandise inventory, and prepaid expenses. Long-term assets include property, plant and equipment; intangible things such as patents, trademarks, and goodwill are also long-term assets.

Liabilities account can be any debt that the company owes to its creditors and can be short-term or long-term credits. Short-term liabilities are debts that are payable within a year, and long-term liabilities are those financial obligations that must be settled over a year. Short-term liabilities are notes payable, accrued salaries, and income taxes. As shown on able II, for instance, Global Project Consulting Group owns current or short-term obligations of $61,000 compared to $40,000 long-term liabilities made of notes payable and bonds payable.

Owners ‘equity in the company contains cash, retained earnings, and common stocks

Assets are invested in business organizations to produce profit outcomes for investors. Assets account consists of money (borrowed or owned), materials, supplies, machines, equipment, and inventory items. It also has petty cash, temporary investments, accounts receivable, inventory, supplies, and prepaid insurance. These items are reported on the left-hand side of the equation.

Sarbanes-Oxley Act of 2002 was enacted to compel publicly traded organizations to conform to a series of standards to safeguard investors against unfair business practices. The Act, aka Sox, requires companies to enhance their internal controls so that they can better perform by recording and reporting financial information accurately and conforming to acceptable standards. The internal control process involves the establishment of responsibility, segregation of duties, adequate documents and records, physical control and independent checks

Establishing responsibilities ensures that everyone who is designated or employed to handle cash must be able to take full responsibility for the duties he or she performs.

Segregation of duties is about creating checks and balances among those who manage financial transactions or cash in an organization so that there will be no fusion of responsibilities or obligations. In other words, the duties of a cash register must be separated from the assistant accountant or the treasurer.

Adequate documents and records ensure that sufficient and accurate evidence is provided for all financial statements. This includes adequate recordkeeping, creation of pre-numbered invoices, and the timely preparation of documents, to name a few.

Physical control is an act of securing and protecting financial assets and records such as petty cash and checkbook by restricting to public those areas where these assets are kept or saved. Restriction to access may include, among other things, issuance of employee ID, using a safe deposit, building fences, and locking up certain rooms from access except to who are allowed.

Independent checks allow well-qualified and certified independent financial experts to come over from time to time to find out if the company is performing according to the standards and Sarbanes-Oxley Act of 2002.

Petty cash is usually a paltry sum of money established, paid for, and restocked. The size and purpose can be different. In a smaller organization, petty cash can be about $100 or more. Generally, a Petty cash account is established to pay for immediate or urgent activities such as posting a letter, paying taxicab fees, and supplies, to name a few without going through bureaucratic labyrinths.

Petty cash must be reported on the balance sheet as an independent, separate cash account or as part of a group of other accounts such as cash & equivalents. To make sure petty cash is disbursed correctly, accounted for, accurately used for the intended purpose, the organization usually appoints a custodian to manage it. Petty cash receipts may also be pre-numbered and recorded for tracking and verification purposes.

To show responsibility and adequate documentation, petty cash fund custodian, must sign and keep all the receipts. The receipts and the remaining fund must match. This facilitates an outsider or independent auditor to easily track expenditures and verify the records in case of discrepancies.

Cash and equivalents account contains checks, saving and checking accounts, money market accounts, currency, coin, short-term liquid investments, treasury bills, and commercial paper. It also includes petty cash. Cash & equivalents account always reported on the asset side of the balance sheets.

A voucher is a form that is used to show that a transaction has taken place between payee and payer. The amount that the payer pays can be debt, purchase of merchandise, materials, and services. The voucher form carries the name of the payee, describes the transaction, the date the transaction takes place voucher’s number, address of payees, signature, payment date, and discounts. Depending on the company, the voucher system can come in various forms including voucher register-record, unpaid voucher file, paid voucher file, and a general journal

Conclusion

Balancing the account is based on the time-tested equation, standards, and conventions that Global Project Consulting Group must emulate continually. We will also ensure that Internal control standards are met. Accounting and financial standards do promote the effectiveness and efficiency of operations; reduce the risk of asset loss, and helps to ensure compliance with laws and regulations. They also ensure all transactions are recorded and that all recorded transactions are real, properly valued, recorded on a timely basis, properly classified, and correctly summarized and posted.  This can only be achieved if everyone within the organization plays a positive role in helping the organization balances its financial accounts.

References

Edition, C. (Ed.). (2010). Financial Accounting. SKS7000-Executive Concepts in Business Strategy (pp. 603-849). Upper Saddle River, NJ: Prince Hall.

Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2009). Financial Accounting. Hoboken, NJ: John Wiley & Sons, Inc.

Scott, N., & Bille, M. (2013). College Accounting. Mason, OH: Southwestern Cengage Learning.