|Syllabus | Class Sessions | Links | Grading | Assignments|
Cash, Credit, Credit Cards, Checks, Trade Credit, Credit Terms
Cash and handling cash is not as simple as it might seem. Cash comes in many forms, it must be deposited, it must be accounted for, it must be accessible when needed, it must be reported, and it is often replaced for a while by credit.
How Do Customers Prefer to Pay for Goods & Services?
As the dollar amount charged for goods & services rises, customers shift away from using cash and more towards using checks and credit/debit cards for purchases and then towards credit/debit cards and away from checks.
U.S. Census Bureau 2000 data
What is Cash?
Cash and cash equivalents are generally kept in several places by a business and are depositable into a bank account. When discussing cash we usually make a distinction between what is cash and a cash sale and what is credit and a credit sale. Common forms of "Cash" include:
Cash is any Asset including cash on hand, money on deposit, and any items that banks will accept for immediate deposit.
You are required
to report large cash transactions to the IRS. The main purpose is
to deter money-laundering schemes and other illegal activity.
The IRS requires that you report to when:
Where is Cash Kept?
Keeping Track of Cash
A smart business owner will either do a bank reconciliation or ask the bookkeeper to do one monthly to check for errors and make corrections. Other activities are also expected to be done regularly to keep an account of cash.
see lesson on Bookkeeping
Credit occurs when the business allows the customer to take or receive delivery of goods without immediately paying for them. Instead, the customers makes some form of promise to pay, usually at a specified time with specified terms. The terms may allow some modification of when payment can be made and how much will be eventually paid.
These promises are called Receivables:
Credit Card transaction occur in several ways:
Credit Card sales slips are treated differently depending upon who issues the credit card; a private company or a bank.
Some considerations regarding credit cards are
How Do Credit Card Fees and Interest Work?
First, the Credit Card companies charge fees for the merchant for accepting credit card purchases and charge the customer interest fees for using the credit cards. The fees vary by company and are are all over the map.
In addition, the merchant needs to sign up for a credit card service. These are often known as Gateway, cash settlement or Credit Card Clearing companies. This service is a clearing house that verifies the credit card and its status and okays the transaction; but charges additional fees for this service. These companies will generally provide you with:
Your expenses and fees will include:
Restaurants and other businesses's that process the card and allow tips to be added when the server brings the bill to the table often use a batch system with their cash register and credit card processing machine. The card is run and each ticket is tracked to match later with the tip added by the customer to the amend the card transaction. At the end of the day all the transactions are submitted to the cash settlement company as a batch file.
Tableside pay systems are becoming possible and popular, first in Europe. They allow the customer to keep the card in sight and to avoid employee fraud and "skimming" scams where handheld devices are used to record customer information and sell it later or perpetrate identity theft.
Are ATM Cards Different? Are CC's, ATM cards and PayPal secure?
Credit Terms and Trade Credit
When cash, checks and credit cards aren't used, a merchant can give a customer credit through what is known as trade credit. This is usually done for sales that are considered B2B sales (business to business) but may be applied to customer sales.
Modifiers to the basic terms include:
Layaways are not credit
sales and are not cash sales. They allow a customer to have merchandise
held for and make payments. When payments are completed the customer gets
the product. At that time the merchants bookkeeping system records the
sale. Prior to that, it is a liability, a promise by the merchant to deliver
Handling and Avoiding Bad Checks
What can a merchant ask for and record when a customer pays by check?
The merchant requesting to see a credit card must inform the
Further, the merchant can:
o Require the consumer to show and record identification such
o Require, verify and record a consumer's name, address and
o Require a check guarantee card and record the number,
Accepting payment by check is riskier than accepting cash (unless it's counterfeit) and accepting credit cards (the credit card company guarantees payment).
Checks that bounce are sent back to the merchant stamped NSF for Non-Sufficient Funds. AND, your bank usually charges you $20 or more for the bounced check. You should check with the customers bank before trying to redeposit it. You should then ask the customer to reimburse you for the bounced check fee.
Checks may bounce because:
Some businesses adopt a "no checks" policy. This can cause you to lose the business of perfectly solvent customers who like the convenience of writing a check. Also, with checks, there is no transaction fee like there is with credit cards, thus the merchant may prefer checks.
Your best business decision is to adopt a policy that makes sense and stick to it. Here are some policies to consider:
Note: under the U.C.C. a check is considered "stale" six months after it is issued. However, most banks will still cash it if the account is still solvent.
Dealing with Bad Checks
Try as you will, you will still get bad checks.