THE IMPREST
SYSTEM AND CASH MANAGEMENT IN NIGERIA
Background
of the Study
The Imprest System is an accounting
system designed to track and document how cash is being spent. The most common
example of an imprest system is the petty cash system. Cash is both a
fundamental resource and the means by which the entity acquires other
resources. To manage cash is to manage the entity's ability to purchase assets,
service debt, pay employees, and control operations. Thus, effective cash
management directly correlates with the entity's ability to realize its
mission, goals, and objectives. The term cash management has been defined in
different ways by different scholars. For instance, Barrett (1999) defines cash
management as the series of processes used by an organization to obtain the
maximum benefit from its flow of cash funds. Storkey (2003) defines cash
management as having the right amount of money in the right place and time to
meet the government’s obligations in the most cost-effective way. The Chartered
Institute of Management Accountant (CIMA, 2002) observed that, cash management
is imperative in every business organization as cash is said to be the life
blood of any business. No business operation is isolative of cash management
(Abioro, 2013). The success of enterprises largely depends on a number of
factors including sound cash management practices (Attom, 2014). The essence of
cash management is to ensure positive cash flow for smooth business operation
(Abioro, 2013). Barrett (1999) documents that the underlying objective of cash
management is having enough cash available as and when it is needed, and that
sound cash management involves better timing of expenditure decisions, earlier
collection and banking of revenue, and more accurate forecasts of cash flows.
This helps minimize the cost of any borrowing that is necessary and facilitates
investing surplus funds to achieve the best return overall.
The Asian Banker Research (2011)
documented that the main drivers for improving efficiency in cash handling are
to minimize cost and increase security and therefore adequate forecasting is
the key to minimize excess cash, but is also the most challenging task, as it
is influenced by many variables. Moyer, Maguigan and Kretlow (2001) submit that
effective cash management is particularly important for the following reasons:
First, it assists in preparation of financial statement plan to support
application for bank loans; secondly, it reduces cash shortage problem,
thirdly, it helps firms to keep track of its cash resources which
are used in inventories and accounts receivable, fourthly, it
enables a firm to operate only a minimum of cash resources because of the high
cost of, and limited access to capital.
Sound cash management involves better
timing of expenditure decisions, earlier collection and banking of revenue, and
more accurate forecasts of cash flows. This helps minimise the cost of any
borrowing that is necessary and facilitates investing surplus funds to achieve
the best return overall (Barret, 1999). The techniques of cash management and
the degree of sophistication in business processes will vary from entity to
entity and will be influenced by an entity size, geographical location and the
nature of its operations. This can be exhibited by the fact that small and
medium level enterprises with diverse branches located in different regions
within a given country or in different countries normally will try to adopt the
cash pooling technique in managing its cash since it takes into consideration
cross currency variations thus eliminating currency risk exposure (Ondiek et
al., 2013). Basically, the process of managing cash today has been
significantly influenced by the growing developments in the business world over
the years (Kesseven, 2006). Lienert (2009) found out that modern cash
management has four major objectives, namely; to ensure that adequate cash is
available to pay for expenditures when they are due, to borrow only when needed
and to minimize government borrowing costs, to maximize returns on idle cash
and to manage risks, by investing temporary surpluses productively, against
adequate collateral.
THE IMPREST SYSTEM AND CASH MANAGEMENT IN NIGERIA
Chapters: 1 - 5
Delivery: Email
Number of Pages: 70
Price: 3000 NGN
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