How much of a cash plug is acceptable each month on a bank reconciliation - $10? $100? $500? $1,000? The answer is ZERO! If the reconciliation contains a cash plug or a difference, then not all of the activity for the month has been identified.
A prompt monthly bank reconciliation should be prepared each month for all bank accounts. This will identify potential problems with other accounts. The small difference of $500 on a bank reconciliation could be an unrecorded deposit of $l00,000 and an unrecorded floor plan payoff of $99,500 - net $500 difference. One of the most important cash controls the dealership has is the review of the bank reconciliation.
Old outstanding checks should be reviewed on a monthly basis. If checks need to be reversed, they should be reviewed in detail and approved by the dealer. Deposits in transit from the previous month should be traced to the current month bank statement. This will verify that the deposits cleared the bank early the following month. Verifying the clearance of previous month's deposits in transit could identify cash plug entries.
All general journal entries to cash and supporting documentation should be reviewed and approved by the dealer. Any voided checks for the month should be submitted to the dealer for his review and approval. Blank checks should be stored in a safe or a locked cabinet. Access should be limited to a few people to safeguard against unauthorized usage.
Checks should be used in numerical order to aid in maintaining strong controls over cash. All checks received by the dealership should be immediately restrictively endorsed and put in the cash drawer. Cash and checks should be deposited daily with no exceptions.
The bank statement should be received by the dealer. The dealer should open the bank statement and review all returned checks. A review of the supporting documentation for a few of the checks each month should occur.
Dual signature should be mandatory on all checks unless the dealer signs the checks. The number of check signers should be limited to a few people to maintain control over this function. The cash sales clearing account should either have a zero balance or be reconciled on a daily basis. An item should not be maintained in this account more than one or two days. The cash sales clearing account should be reviewed monthly to spot any trends.
Cash overages and shortages should be posted to a separate account on the detailed general ledger. The detail of this account should be reviewed monthly to spot any trends.
Cash is the most liquid and valuable asset in the dealership and sometimes your only friend. The above items are a few controls that should be applied at your dealership to aid in controlling your cash.