The place of cash in financial reports

2019-08-05 14:36:36

Despite the fact that the number of transactions carried out in cash among Czech companies and entrepreneurs is decreasing rapidly, they still take place. We live in a digital era ruled by the same digital money, however today we are going to describe the role of cash in financial reporting and accounting, the limits on cash payments and people who usually check the number of cash payments as well as about the obligations of an employee who is entrusted with cash management.

Company reports

First, let’s look at the account where the corporate funds are stored. The following points should be registered at such an account: 

  • status and cash flow based on cash receipts; 
  • status and movement of checks received instead of cash and non-cash vouchers (e.g. vouchers for goods, services); 
  • the state and movement of securities (e.g. postage stamps, inspection excises for alcohol labeling, road stickers, stamps for payment of state duties, phone and other cards if they have value that can be cashed after they are put into operation); in addition, food vouchers if the food is provided with food stamps. 

Keep in mind

  • Cash and values transferred to employees for predetermined purposes as well as bills are recorded in the report as accounts receivable of employees and founders of the company. 
  • Analytical accounts reflect the status and movement of foreign currencies and bills of exchange in foreign currency, for every currency separately. 
  • In the case using cash registers in foreign currency (an enterprise cashbox in foreign currency for individual currencies), cash receipts and the entire record are issued and tracked in the relevant foreign currency. The currency is always converted into Czech korunas in the financial statements. The exchange rate for currency conversion is chosen in accordance with the internal rules of the company (possible options are described in the accounting Law). Once a rule is selected, it should be applied. The options are as follows (according to the accounting policy): 
  • application of the current official exchange rate of the Czech National Bank;
  • application of a fixed exchange rate: the rate established by the internal regulation of a company on the basis of the exchange rate of the Czech National Bank which is used by the company for a predetermined period of time (this period must not exceed the reporting year);
  • application of the rate the foreign currency was bought or sold for;
  • in certain cases, it is possible to rely on other laws that clearly define the rules of conversion. 

Exchange rate

Let’s look at the rules of currency conversion into korunas in accordance with the Labor Code (Law No. 262/2006) in the calculation of travel expenses. 

It is obligatory to use rates: 

  1. when an employee or a CEO of a company is sent on a business trip, advance payment is paid in the currency of the country-destination of this trip. For the currency exchange, the CNB rate on the day of the advanced payment is used; 
  2. if the advance did not cover business trip expenses, the actual rate of the CNB on the day of the advanced payment is used during the final payment; 
  3. when calculating the amount of the employee’s obligation to return funds, if the advance was higher and the employee returns the amount in Czech korunas, the rate of CNB valid on the day of payment of the advance is used;
  4. when calculating the amount of the employee’s obligation to return funds, if the advance was higher and the employee returns the money in a currency other than the one in which the advance was paid (since the employee exchanged the funds for another currency abroad) – the rate provided by the employee is used; 
  5. when calculating payments for business trips, if the advance has not been issued to the employee, the rate of CNB applied on the day of the beginning of the foreign trip is used; 
  6. when accounting for cash flows in other cases, the company uses the current rate (according to the accounting policy of the company) on the date of the accounting transaction. 

General calculation provisions 

Foreign currency is maintained in parallel with the Czech currency. The balance of funds in the cash register of the enterprise is recalculated to the date of the annual report at the exchange rate declared by the CNB for this specific date. 

Restrictions

The cash payment restrictions act No. 254/2004 states:

  • that the payer covering amounts exceeding the limit is obliged to make a payment only by Bank transfer;
  • that the recipient of the payment if its value exceeds the limit, is not entitled to accept this payment in cash. 

Possible limit since 01.12.2014 for cash – 270 000 CZK per day from one client (over the past 15 years the limit has grown and fallen, reaching 15 000 euros, 350 000 CZK). 

The restrictions do not apply

The obligation to comply with the limits does not apply to the following payments specified in the law: 

  • payment of taxes, fees and other similar payments made in accordance with Tax code or Customs law unless otherwise is provided by law;
  • payment of wages;
  • pension insurance payments, including one-time payments and benefits from pension funds and participants funds managed by a pension company;
  • payments made during a crisis fixed in accordance with special legal regulation;
  • payments of insurance premiums and payments received from private insurance companies;
  • payments made by the Czech National Bank (CNB) for the sale of commemorative coins;
  • payments received by the bailiff, court or administrative institution during the fulfillment of the decision. 

Peculiarities

  • The limit includes all payments in Czech and foreign currencies made by the same payer (the counterparty) to the same recipient of these payments within one calendar day. 
  • Payment in foreign currency is converted into Czech korunas at the exchange rate of the currency market declared by the CNB and actual on the date of payment. 
  • Cash payments are usually checked by a cashier or an accountant of a company. 

Treasurer

Currently, there are no regulations conditioning that a cashier cannot be the same person who performs the role of an accountant in the company (this restriction was in force until the end of 1991 in order to divide these positions if the owner was the state). Currently, the competence of every company (more precisely its owner) includes selecting a person who will work as a treasurer. 

According to the Labour code (section 252), an employee who acts as a treasurer is subject to a contract of liability for entrusted values. 

Principal activities of a company treasurer:

1. he/she keeps records of cash and securities flows. The register is usually a standard cash book, there is a separate one for every currency and type of securities; if he/she keeps the book manually, it is done under the carbon copy: a cashier sends a copy along with receipts to the accounting department. 

2. he/she writes cash receipts and is responsible for their formal correctness: the form of cash receipts is not prescribed by a specific law, but must meet the requirements of the accounting act. 

The cash document must contain the name of the organization and include the identification of the person who accepted the cash or securities, a brief description of the accounting operation, the date of the cash receipt issuance, the signature of the cash recipient and the signature of the cashier (cashier checks the formal accuracy of cash receipts). The Treasurer cannot issue a check without verifying the authenticity of the original document on the basis of which he issues the cash document. People responsible for the accuracy of the original documents and samples of signatures on them must be determined by the internal charter of every company. 

3. he/she ensures continuous numbering of cash receipts: the numbering of cash receipts is ascending, continuous and is usually entered in separate cash books. 

4. he/she checks the amount of cash payments: the verification corresponds to the above limitation of cash payments described in the Law. 

Note

An individual commits an offense by accepting monetary payment made in violation of this law. A fine of up to 500,000 CZK may be imposed for a violation. In the case of a legal entity, the amount of the fine may reach CZK 5,000,000. 

5. he/she provides replenishment of cash and securities and transfer/Deposit of cash to the Bank. 

6. he/she receives and distributes cash and issues securities at designated hours. 

7. he/she sends cash receipts for the transaction. 

Inventory and archiving

  1. Like other assets, cash is subject to inventory. Cash is inventoried at least once a year under the accounting Act; this is mandatory. In practice, cash and securities are inventoried much more frequently than other assets. Here we are talking about the so-called unscheduled inventory. For example, when a cashier is changed or not by the schedule, but by the decision of company management. 
  2. The difference in cash reserves found during the inventory – when the actual condition of the funds is lower than in accounting – is called a deficit of cash and securities. In the case of a deficiency, a claim is usually made against the person responsible for the deficiency compensation. 
  3. Accounting records must be archived – so says the Law. Archiving of the cash agenda is determined for a period of 5 years (starting from the end of the reporting period to which they relate) and is used for accounting documents and books. At the same time, however, the Law establishes an obligation to respect other laws when archiving, where the obligation to archive is usually longer (e.g. VAT documents are archived for 10 years; payroll documents for pensions are archived for 30 years). 

Regulations of the company cash register

It is recommended that every company issues internal regulations of the cash register, which will determine: 

  • activities of a treasurer, including monitoring restrictions for cash payments described above; 
  • the safety of funds movement (if depositing cash stored in the cash and contribution of cash to the Bank);
  • inventory of cash desk where cash and securities are stored;
  • archiving of cash desk documents;
  • other rules, in particular, the need to decide the rules of the respective currencies conversion (unless otherwise provided by a separate internal regulations of the company).

The form of this regulation depends on the specific conditions and organization of the enterprise. The form of internal regulation is also closely related to the accounting system of a company. These nuances can be very different for millionaire enterprises with large branches which we will not consider.

Do you have any further questions? Feel free to ask right now! We have provided accounting and consulting services since 2006. 

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