Cashflow Accounting - Cash Control
A control technique (q.v.) that aims to keep the amount of cash immediately
available to an organisation within desired limits.
If a company is unexpectedly short of cash the result can
be anything from mildly annoying to disastrous. For example, the company
may have to seek an immediate alteration in the overdraft limit, or it
may unable to pay salaries. If it has an unexpected surplus, again money
is likely to be lost since insufficient time is available to plan the most
profitable way to dispose of it. Consequently it is important to be able
to forecast the cashflows of the company reasonably accurately in the short,
medium and long term.
The technique consists of two component parts.
- there are the various methods of cash forecasting; this is of
crucial importance (e.g. the Balance Sheet Projection Method);
- there is the daily, weekly and monthly cycle of activity needed
to invest surpluses, to borrow to meet shortages and to mobilise cash from
A cash-only grocer has a much simpler problem than an
international manufacturing company. It is not just a matter of scale but
of complexity. The latter has to make dividend payments, allow for devaluations,
finance debtors, have cash available for capital expenditure and so on.
In a large company the cash sums handled may be so large that it becomes
necessary to appoint full-time specialists to prepare forecasts and co-ordinate
day to day and month to month action on investments and cash mobilisation.