Cash Management System (In The Case Of Study of

Commercial Bank of Ethiopia in Ticho Branch) a senior Essay

submitted To the Department Of Accounting For Partial
Fulfillment Of Acquiring Degree In Accounting

BY:-MESFIN YESHITLA ZEAMANUEL

ID NO. D4AC85901/02

Submitted To: - Accounting Department

 Table of content

Content page

Acknowledgement--------------------------------------------------------------------------------------------i

Acronym-------------------------------------------------------------------------------------------------------ii

Abstract-------------------------------------------------------------------------------------------------------iii
Chapter one

1. Introduction----------------------------------------------------------------------------------------------1

1.1Back ground of the study-------------------------------------------------------------------------------1

1.2Back ground of the organization----------------------------------------------------------------------1

1.3statment of the problem--------------------------------------------------------------------------------2

1.4 Objective of the study---------------------------------------------------------------------------------3

1.4.1 General objective----------------------------------------------------------------------3

1.4.2 Specific objective------------------------------------------------------ ----------------3

1.5 Significance of the study-----------------------------------------------------------------------------3

1.6 Methodology-------------------------------------------------------------------------------------------4

1.6.1 Source of data-------------------------------------------------------------------------------4

1.6.1.1 Primary source----------------------------------------------------------------------------4

1.6.1.2 Secondary source -------------------------------------------------------------------------4

1.6.2 Sample technique and sample size --------------------------------------------------------------4

1.6.2.1 Sample technique--------------------------------------------------------------------------------4

1.6.2.2 Sample size---------------------------------------------------------------------------------------4

1.7 Scope of the study -----------------------------------------------------------------------------------5

1.8 limitation of the study-------------------------------------------------------------------------------5

1.9 Method of data analysis-----------------------------------------------------------------------------5

 CHAPTER TWO

2. Literature review related to cash management system--------------------------------------------6

2.1 Cash management-------------------------------------------------------------------------------------6

2.1.2 Definition of cash-----------------------------------------------------------------------------------6

2.1.3 Cash management/planning-----------------------------------------------------------------------6

2.1.4 Importance of cash management ----------------------------------------------------------------7

2.2 Cash collection and disbursement -----------------------------------------------------------------8

2.2.1 Reasons for holding cash--------------------------------------------------------------------------10

2.2.2 Advantages of holding adequate cash and near cash asset------------------------------------11

2.2.3 Cost of holding cash-------------------------------------------------------------------------------13

2.2.4 Cash budget----------------------------------------------------------------------------------------13

2.2.5 Efficient management of cash--------------------------------------------------------------------14

2.2.6 Cash management service for commercial bank-------------------------------------------------15

2.3 Ethiopia national bank reduces reserve requirement--------------------------------------------16

2.4 Petty cash system---------------------------------------------------------------------------------------17

2.4.1 Petty cash receipt format----------------------------------------------------------------------------17

CHAPTER THREE

3.Data analysis and interpretation-----------------------------------------------------------------------18

3.1 cash collection and disbursement -------------------------------------------------------------19

3.2 Make cash collection and disbursement to customer---------------------------------------20

3.3 Elective cash management system------------------------------------------------------------21

3.4 Purpose for holding cash-----------------------------------------------------------------------22

3.5 Treasury bills------------------------------------------------------------------------------------23

3.6 Credit policy used by bank-------------------------------------------------------------------24

3.7 Repayment loan by credit customer ---------------------------------------------------------25

3.8 Auditors in the bank----------------------------------------------------------------------------27

3.9 Idle cash------------------------------------------------------------------------------------------28

CHAPTER FOUR

4. Finding conclusion and recommendation--------------------------------------------------30

4.1 Finding and conclusion ------------------------------------------------------------------30

4.2 Recommendation --------------------------------------------------------------------------33

LIST OF TABLE

PART 1

PAGE

Table 1Question 1 2 3 4 General characteristics of the respondents---------------------18

PART 2

Table 2 cash collection and disbursement process --------------------------------------------19

Table 3 effective cash management system---------------------------------------------------21

Table 4 Purpose for holding cash-----------------------------------------------------------------23

Table 5 investment in treasury bills-------------------------------------------------------------24

Table 6 credit policy used by bank--------------------------------------------------------------25

Table 7 repayment loan by credit customer---------------------------------------------------26

Table 8 dose the bank has auditor to control the cash--------------------------------------27

Table 9 idle cash---------------------------------------------------------------------------------28

 Acknowledgement

This Project shall be incomplete if I fail to convey my heart-felt gratitude to those people whom I

received considerable support and encouragement during this project creation. Lots of People have

helped, provided technical, commercial and also behavioral acumen at all levels of the project and it`s

my luck for get the kind of support of them. I have no words to thanks to ABATE WEDAJO giving

us his innumerous knowledge among all group of project Partners. They are becoming as Way to take

us from dark to bright future and specially they play their important role for Motivation and to

endeavor for succeed in project creation.

ACRONYMS

CBE: Commercial Bank of Ethiopia

NO; Number

CCC; Cash Conversion cycle

CCR; commercial credit report

ATM. Automatic tailor machine

NBE; National bank of Ethiopia

ABSTRACT

This research would be conducted on the title of cash management system On CBE Ticho branch

conducting this investigation has a great valuable for Commercial bank cash management system

The objectives this research is to be appreciate CBE in order to apply good Techniques and

mechanism for cash management system the study team raised Question under cash management

screen out problems and try to find out Solutions for the problem

The researcher used both primary and secondary data collection techniques

1. And we also analyzed by descriptive statistical percentage system

Reference

E.F bringham, collisc.G.(intermediate financial management 5 th edition)

- (impandary, 1999(financial management 8th edition 1999)

- Http// www,wise qeek. Com/cash management. Com.

-cash management www. Answer .com <business and finance>(banking dictionary)

- cash management (the importance of cash management. Ezinearticles .com

- VAN Horn, fundamental of financial management 15 edition

(http:// www. Pcn, money.com/ 2010/11”)

- Hampton, 1989

- Robert’s w. Kalb and record J. Rodriquez, financial institution and capital market)

- Van horn 1989

- Financial Accounting “tools for business decision making paul. Wayne gandt I 1998)

- Fess Waylon principle of accounting 16 th edition

- Ross (1995)
 ST. MARY’S UNIVERSIST COLLEGE

School Of Distance Education Division

Department Of Accounting

QUESTIONAIRE TO BE FILLED BY EMPLOYEES OF COMMERCIAL BANK OF ETHIOPIA

Dear Respondents

This questionnaire is designed by the student at ST. Maries university college undertake research

titled “ cash management system at commercial bank of Ethiopia “ and it is conducted as partial

fulfillment of degree in accounting . So the result of the student will be used for the stated purpose

only << we thanks in advance>>

Part 1

1. What is your gender? Male Female

2. In which section do you work?

Treasury domestic department

3. How long in years have you worked in banks?

< 2 year 3-5 years 6-8 years 8-10 years

>10 years

4. Which of the following best describes your role in your branch?

Senior manager journal keeper clerk

Accountant Auditor

Other pleases specify -----------------------------------------------------------------------------------------------

 CHAPTER ONE

1. INTRODUCTION
1.1 Back Ground of the study

Cash management is the managing and controlling of cash over the institution cash is the first
asset in the portfolio of commercial bank of Ethiopia (CBE). Cash management does not involve
having the optimum neither exclusive nor deficient amount of cash. Cash management requires
that the company knows how much cash it need and where that cash is at all time. Monitoring
and controlling of cash is often neither vary through nor systematic. (“E.F. Brigham, Louise. G.”
Intermediate financial management 5th edition) Page 723-725.

Cash in an asset to the business organization. It usually considered to be one of the current
asset. It also an asset that is readily convertible in to any type of assets, and easily concealed
and transacted. cash is often “ non earning asset” it consist cash on hand, coins, notes, checks,
currency (money paper), money order and money deposit in the bank. It also includes short
term investment that can be reading converted into cash, check accounts and money market
account( source: internet)

1.2 Back Ground Of The Organization

Commercial bank of Ethiopia is established in 1942 ad Addis Ababa by one million. Mariathersa
dollars, capitals and now a day operating in different districts that cover all cities and including
major towns of the country including Ticho

1
Commercial bank of Ethiopia Ticho Branch established in December 2013 now It operates or
serves different finance related function for the society it is private bank not governmental bank
because they starts with capital shoring and with legal personality

Generally commercial bank performs a variety of function that is not possible to make an all
inclusive list of there function and services. However, some of the functions performed by the
bank are:-

They are principle means of making payment through the checking demounts
(demand deposits) they offer

Are able to create money from excess reserves made allocable from the public’s
deposits.

Receive (deposits) excess cash of savers and provide loans and make
investment; thus generate a multiple amount of credit

One of the major source of loan to small and medium sized businesses.
(source : Robert W. Kalb and Ricordo J. Rodriguez; financial institutions and
capital markets)
1.3 Statement of the problem

The cash management is a powerful tool for control of both effective and efficiency
of cash. However, what measures taken by the bankers to make the bank cash
management system more efficiency and effective. Top prove this it is necessary to
raise the following questions.

- How the bank controls idle cash?

- What is the collection system of cash receipts and payments?
- How cash collection and payments process is effective?
- What is the purpose of check payment

The Importance of cash management is concerned with

- Cash inflow and out flow of the firm

2
 - Planned to project cash surplus or deficit
- To make trade discount and maintain its credit rating and Etc.
1.4 Objective of the study
1.4.1 General objective

The main objective of the paper is to be evaluate the overall performance of cash management
on commercial bank of Ethiopia Ticho Branch

1.4.2 Specific Objective

• Assess to level of cash deposit by customer
• Determine the loan given to customer.
• Compare the loan and deposit
• Make trend analysis of cash to bank.
1.5 Significance of the study

This research paper is conducted to reveal

• To lay base for the bank cash management system and concerned body for
further better of the study based on the research
• To indicate what type of system the bank use for improvement of cash
management system
• To give helpful insight, storing and proper using of cash in safety way especially
out flow of cash
• It helps to show good plans and controls of excess and deficient of cash

3
1.6 Methodology
1.6.1 source of data
The data would be collected from both primary and secondary source
1.6.1.1 Primary source

As a primary source personal interview and observation method would be used

including questionnaires I.e. Extensive questionnaires that would cover a sample
population of bank and managers.

1.6.1.2 secondary source

A view would be conducted on different documents, books, magazines and internet of

the company. In addition different reading of literature related to the problem under
investigation would be under taken

1.6.2 Sample technique and sample size

1.6.2.1 Sample Technique

To meet the objective of the study the data is gathered through anon probable or non random
sampling that is judgment sampling. The reason is that, using judgment sampling is enable to
we carefully identify items from the population that are to be included in the sample. This
technique would be permit the research to complete freedom of selecting individual who can
provide relevant data about the organization

1.6.2.2. Sample size

Currently the organization has seventy (70) full time man powers (employees). From those total
populations we distribute ten (10) employees

4
from management and some questionnaire which would be filled by those respondents who
have the context background.

1.7 Scope of the study

Our topic mainly concerned with the cash management system . I.e. How cash is collected and
disbursed, the techniques of cash management system and how cash is budgeted . It is
somewhat narrow in scope because if it is wide it would become out of our control or we
cannot manage our topic. It may became costly to undertake our study to minimize cost and to
undertake our study to level that is manageable, we focused on some fair and achievable
standard

1.8 Limitation of the study

Initially it is hoped to conduct the study successfully. However, It is found that it would become
difficult to do so. Some of the factors that are supposed to hinder our study expected to be the
following

- Lack of available materials and references that are relevant to the study
- Time constraints and data constraints
- Shortage of time to get additional information from the bank.
- Shortage of fiancé
1.9 Method of data analysis

Many analytically technically including those involving variety of financial ration are available
for cash management system analysis. The method ,that would be applied in the study would
be trend analysis, descriptive and analysis and ratio analysis supported with table and
percentages.

5
 Chapter Two

2. Literature review related to cash management system

2.1 Cash Management
2.2 2.1.2 Definition of cash

Cash is the important current asset for the operations of the business. Cash is the basic input
needed to keep the business running on a continuous basis; it is also the ultimate output
expected to be realized by selling the service or product manufactured by the firm.

Cash is the many which affirm can disburse immediately without any restriction . The term cash
includes coins, currency and checks held by the firm and balance in the balance in its bank
accounts. Some time near cash items, such as marketable securities or bank time a deposit of
near-cash asset is that they can readily be converted in to cash.(Impanday 1999)

Cash is also an asset that is readily convertible to any type of asset, it is easily concealed
transacted and highly desired because of these characteristics, cash is the asset most
susceptible to improper diversion and use. Moreover, large value of cash transaction,
numerous errors many occur in executing and recording cash transaction . To safeguard cash
and assure the accuracy of accounting record for cash, effective internal control of cash is
imperative. The items such as postage stamps and post dated checks (checks payable in the
future ) are not cash

2.1.3 Cash Management /planning

Cash management is abroad term that covers no of functions that help individual and business
process receipts and payments in an organized and efficient manner(Http:// WWW. Wise peek.
Com/cash management. Com)

6
Cash management also refers to the collection, concentration and disbursement of cash . It
encompasses a companies level of liquidity, its management of cash balance and its short term
investment strategies. In some ways, managing cash flow is the most important job of a
business mangers, it at any time a company fails to pay an obligation when it is due because of
lack of cash, they go to bankrupt . Obviously, the prospect of such a dire consequences should
compel company to mange their cash with care

Moreover , efficient cash management means more than just preventing bankruptcy . It
improves the profitability and reduce the risk to which the firm exposed, Thus the goal of cash
manager is to minimize the amount of cash the firm much hold for use in conducting its normal
business activities . Yet, at the same time to have sufficient cash:- To take discount , to
maintenance its credit rating and to meet an expected cash needs, (source: cash management
“www, answer . com business and finance “ (Banking dictionary )

2.1.4 Importance of cash management

What is a cash management of a commercial bank ?

Many is an account balance . Bank do not maintain cash an hand equal to the amount of many
deposited. Rather, they keep about 10 % of the deposited fund in cash. The amount require
various from day to day and week to week. Cash management is keeping enough cash an hand
to handle the banks cash business plus the cash reserve dictated by the bank policy. Cash on
hand plus cash deposited minus cash paid out equals net cash on hand. To ensures that net
cash on hand meets the bank’s needs, the cash manager must estimate with fair accuracy the
amount of cash to be deposited as well as the future cash demand . Cash is ordered from the
federal reserve and excess cash is returned there.

What are the cash management duties in order to execute his/her role affectivity and efficiently
? here are list of cash management duty accordingly

7
 - Bank relation
- Debt management
- Cash forecasting
- Improving receivable processing
- Speeding collection
- Receipts for casting
- Maintaining liquidity
- Short term investment
- Over seeing bank debts
- Reducing idle balance
- Showing disbursement
- Cash conversation

(source : cash management : The importance of cash management ezinearticles . com)

2.2 Cash collection and Disbursement

Cash collection system aim to reduce the time it takes to collect the cash that is owed to
firm some of the source of delays are
- Mail float ,
- Processing float and
- Bank float etc.

Obviously on envelop mailed by a customer containing payment is not processed and deposited
in to a bank account the moment it is received by the supplier firm. And finally when the
payment is deposited in the bank account offers times the bank does bot give immediate
availability to the funds

Cash management attempts among other things, to decrease the length and impact of these
“float” . A collection receipts point closer to the customer

8
Perhaps with on out side third party vendor to receive, process and deposit the payment
(check) is one way to speed up the collection

The effectiveness of this method depend on different situations, such as:-

• Location of customer
• The size and schedule officer payment
• The firms method of accounting payment
• The cost of processing payment
• The time delays involved for mail, processing and banking and
• The prevailing interest rate that can be earned on excess funds

Another aspect of cash managements is knowing a company’s optimal cash balances. There are
a number of methods that try to determine its forecasting (magical) cash balance which is the
precise amount needed to minimize costs yet, provide a adequate liquidity to ensure bills are
paid on time (hopefully with some thing left over for emergency purpose ).

One of the first steps in managing the cash balance is measuring liquidity . liquidity is the
amount of money on hand to meet current obligation. This are current ratios , quick ratio , and
net liquid balance

The higher number generated by the liquidity measures, the greater the liquidity and vice versa.
However , there is trade off between liquidity a profitability which discourage firms having
excessive liquidity

Lockbox service :- are also often used by the business to speed up the account receivable
process . Cash management by lock box require the establishment of a post office box for the
client . The vendor /customer/ uses this post office address as remittance address on an invoice
. As payment are received the financial institution corrects. The payment post them to
operating account for customer . (E.F Bring ham, Louis . G. Intermediate financial management
5th

9
2.2.1 Reasons For Holding Cash

There are three reasons for having cash these are transactions, speculative and precautionary
motives

• Transaction motives: - to meet payments, such as purchase wages, taxes and dividends
a rising in the ordinary course of the business.
• Speculative motives: - to take advantage of temporary opportunities. Such as sudden
decline in the price of the raw materials.
• Precautionary motives: to maintain a safety cushion for buffer to meet unexpected cash
needs. The more predictable the inflow and out flow of cash for affirm , the less cash
that need to be hold for precautionary needs. Ready borrowing power to meet
emergency cash drains also reduced the need for this type of cash balance

For the most firms do not hold cash for the purpose of speculation. Consequently we
concentrate only on the transactions and precautionary motives of the firm. With these needs
being meet with balance held both in cash and in marketable securities

Cash management involves the efficient collection, disbursement, an temporary investment of

cash. The treasury department of company is usually responsible for the firms cash
management system. A cash budget instrumental in the process tell us how much cash we are
likely to have, when we are likely to have it have it and for how long. Thus, it serves as a
foundation for cash forecasting and control. In addition to cash budget, the firm needs
systematic information on cash as well as some kinds of control system for a large firm, the
information is usually computer based. It is necessary to obtain frequent report generally. Daily
on cash balance in each of the companies. Bank accounts, on cash disbursement, on average
daily balance and on the marketable securities position of the firm as well as a detailed reports
on change in this position. It is also useful to have information on major anticipated cash
receipt and cash disbursement. All of this information is

10
Essential if a firm is to manage its cash in an efficient manner. (VAN horn, fundamental of
financial management 15th edition )

2.2.3 Advantages Of Holding adequate cash and near cash asset

Cash management requires that an ample supply of cash be maintained for several
reasons.
1. It is essential that the firm have sufficient cash and near cash asset to take discounts.
Suppliers frequently offer customers discounts for early payment bills. The cost of
note taking is very high, so firms should have enough cash and assets to permit
payment of bills in time to take discounts.
2. Adequate holding of cash and near cash assets can help the firm maintain its credit
rating by keeping its current and acid test (quick) rations in line with those of other
firms in this industry . A strong credit rating enables the firms both purchase goods
from suppliers on favorable terms and maintains an amp line of credit of with its
bank
3. Cash and near cash assets are useful for taking advantage of favorable business
opportunities, such as special offers from suppliers or the chance to acquire another
firm
4. The firm should have sufficient cash and near-cash asset to meet such emergencies
as strikes, fires or competitors, marketing companies and to whether seasonal and
cyclical down turns (Http://www.pcn. Money com/2010/11)

In addition to this needs for cash several important factors can be identified as affecting a firm’s
sizes of cash balance

11
1. Availability of short term credit

Firms can make arrangements to borrow many for run expected needs than holding.
Unnecessary large cash balance, an agreement between the firm need and its bank is the
line of credit. Hampton, (1989) explains it as a formal or informal agreement for a bank to
provide credit it required. The loan will be charged to the prevailing interest rate for its
bank, customers when ever the request is made. “In such agreements the firm pays slightly
higher rate of interest than on long term debt but, has to pays interest only during the
period that the money is actually used” This reduces the size of the balance needed in the
firm.

2. Money market Rates

The money market consists of the institution and individuals who lend or borrow money as
part of the a normal course of business activity

Hampton explains that the level of interest high or low affects the size of the cash balance
maintained by a firm if interest rate is very high the firm will invest its cash, but it internet
rate is low the firm will not invest because, it has low return. Therefore, the firm keeps
excess cash in its checking accounts, which leads to an increase in the firms cash balance .

3. Variation In cash Flow

Some firm will experience wide fluctuation in cash flow. This will happen due to many
delays in payments. This leads to variation maintaining cash balance

12
 3/ Compensation Balance

“Compensation balance is money kept by the firm with event in low interest or none interest
bearing accounts as party of a loan agreement “. (Ross 1995:562) therefore , the agreement
with the bank will determine the firms cash balance. (Source Hampton, 1989)

2.2.3 Cost Of Holding Cash

When a firm holds a cash in excess of some necessary minimum, it incurs an opportunity cost.
The opportunity cost holding cash can be the interest income earned by investing it in bank. It
also should not maintain too small cash balance because it lose some opportunities. So it may
have to raise cash on short term bases such as selling marketable securities or borrowing. These
activities will force the firm to incur additional cost. So, to determine the appropriate cash
balance the firm must weigh the benefits of holding cash against these cost. (Source : Robert .
W. Kalb and Ricards J . Rodriquez, financial institution and capital market )

2.2.4 Cash Budget

Ross (1995) Defines cash budget “a forecast of cash receipts and disbursements for the next
planning period” The Result is an estimate of cash surplus or deficit . It can be prepared
monthly , weekly or even in a daily basis. Van horn (1989:394) defines “cash budget is
commonly o monthly fore cast of receipts and debt . It tells us the likely availability of cash with
receipts to both timing and magnitude” . It constitutes the cash inflow , sales and collection.
The cash out flow which can be categorized in to four:=

i. Payments of account payable

ii. Wages, taxes and other expenses.
iii. Capital expenditure .
iv. Long term financial expenses.

13
The final part is the cash, because which is the difference of collections and disbursement is
either a surplus or deficit, if the firm for casts above the safety level, the firm has a surplus, no
additional cash is needs and the firm will have opportunity to invest the excess cash, but it the
firm for casts a negative cash balance it will have shortages to make payments. So, the firm
must cover the negative positions as well as the shortages below the safety level. Hampton
(1989) defines a safety level” as the minimum amount of cash needed to conduct the firm’s
business property “. The cash budget serves as a foundation for cash planning and control .
When cash budgeting is extended to included arrange of possible out comes the financial
manger can evaluate the business risk and liquidity of the firm and plan for a realistic margin of
safety. The financial manger can adjusts the firms liquidity cushion, rearranging the maturity
structure of its debt, arrange a line of a credit or do some combination of the three.

2.2.5 Efficient Management of Cash

Cash balance and safety of cash are significantly influenced by the firm production and sale
techniques and by its procedure for collecting sales receipt and paying for purchase. Gilman
(1997:739) this can be better understand form a firms operating or convection cycles .

Operating cycle :- it is amount of time that elapses from the points when the firm began to
build inventor to the point when cash is collected from sale of the resulting finished product.

Cash Conversion Cycle (ccc): it is amount of time the firms cash is tide up between payment for
production inputs and receipts of payment from the sale of the resulting finished product.

When the financial manger efficiently manage these cycle he can maintain low level of cash
investment which contributes towards maximization of

14
Share Value. There are Three basic strategies to manage the cash conversion cycle , these are

1. Turn over investor as quickly as possible

2. Collects account receivable as quickly as possible in order not to future sales.
3. Pay account payable as late as possible but take advantage of any favorable cash
discount
4. To generalize the whole idea of these strategies as the inventory turn over increase,
production cycle decrease, then finished good turn over in crease. Finally the cash
conversion cycle decrease . (source E>F bring ham. Lovisc Gapensk, intermediate
financial management 5th edition ).
2.2.6 Cash management service for commercial Bank
Fortunately, commercial bank have cash management service that facilitate the cash
management process.
Zero Balance Accounts= helps business to maximize the use of their funds. Business
generally have several accounts. The most common includes: tax, operating and payroll
accounts. At the end of the day, when all of the transactions have cleared, the
remaining funds just sit in the accounts and do mouthing. With a zero balance account,
the remaining balance of all the accounts except fore one get brought to zero at the end
of each night
Remote Deposit Capture :- reduce time spent standing incline at eh bank with a remote
deposit capture, busyness owner can deposit checks by scanning them in to a machine
located in its office rather than taking them in to the bank
Credit Line:= is a loan made a available when ever a business ha as need for cash. It
helps to ensure that a business obligation get paid on time and that it can handle
emergencies when they a rise (source financed accounting” Tools for business decision
making” Paul, when gannet I 1998).

15
E-commerce= sale of product and service over the internet. It is the fastest growing segment of
our economy. It allow even the smallest business to reach the global audience with its product
or message with minimal cost.

2.3 Ethiopia National Bank Reduces Reserve Requirement

The national bank of Ethiopia reduce the minimum ratio of deposits Ethiopian banks need to
hold reserve from 15 % to 10 % the change took effect as per a directive issued by the central
bank of Ethiopia.

The national bank change its monetary policy to increase the amount of cash banks have
available fore lending according to economist . The amount of “ liquid asset to be held as a
proportion of deposits was also decreased from 25 % to 20% confirmed by the manager of
central bank Of Ethiopia.

Bank loans to varies sectors of business In Ethiopia including exports declined following central
directive in April which instructed bank to by government bond’s to finance infrastructural
project , equivalent to 27%of their total loans every month according to, an independent
economist.

“The national bank made the appropriate decision in lessening its monetary policy to prevent
the export sector from being affected”

It is to be remembered that the world bank and the international monetary fund express
concern that restriction put on loans to private industry could adversely affect the economic
growth of Ethiopia (source: Bloomberg).

Commercial bank drifters from many other financial institution in one critical aspect that is have
the power to create money in the form of new checkable deposit. However, the banking system
as whole can create a volume of money equal to a multiple of any excess reserves deposited
with it simply by extending credit (i.e making loan and purchasing securities).

16
 2.4 Petty Cash System

Immediate cash payment and payment that are too small to be made by check may be made
from a petty/imp rest / cash fund under impress system the petty cash fund is created by
drawing exchequer to petty cash for amount of the fund. In reporting the establishment of
the fund, petty cash fund is debited and cash is credited. The cash is then turned over to the
cashier or some person who is to be responsible for payment made out of the fund. For.
Example

Petty cash fund -----------------------------------xxx

Cash ---------------------------------------------------xx

Example of petty cash payment postage courier tees, repairs, and supplies. Any amount other
than small payment by check, it would be both time consuming and expensive. To avoid witting
checks for small amount a company usually set up a petty cash fund and us fee money in this
fund to make small payment, (source fess war yen principle of Accounting 16 th edition)

patty cash receipt format

for --------------------------------------------- No --------------------------------------

change to ---------------------------------- Date ---------------------------------------
Approved by: --------------------------- Amount: --------------------------------
Received by : ----------------------------

17
 CHAPTER THREE
3 Data analysis and interpretation

This chapter deal with data presentation., analysis and interpretation of major findings. The
studies on the findings are collected from primary and secondary sources.

This section will start presentation and analysis of general characteristic of respondents
followed by presentation, analysis and interpretation of data related to related to research
question type. Interpretation and analysis were made to find out the cash management system

Part 1

Table 1

Question 1,2,3,4 general characteristic of the respondents.

No Item Responses Number Percent (%)

1 Gender Male 4 60
female 6 40
total 10 100
2 work job Treasury 4 40
Domestic banking 3 30
foreign banking - -
credit department 3 30
table 10 100
work experience < 2 year 4 40
3-5 years 4 40
6-8 years 2 20
8-10 ears - -
>10 years - -
total 10 100
Role in bank senior manger 1 10
Accountant 7 70
Auditor 1 10
journal keeper 1 10
clerk - -
other - -
total 10 100

18
 3.2 Cash collection and Disbursement

In the bank how cash collects from its customers depend on large part of business nature. Most
of its customers will pay cost borrowings. So there is no problem with moving delay normally a
bank has putting other money or your fund and at the time it has access to gain access fund
from depositor interest .

When some of the payment of a bank has received a check that arrives through the mail. A
number of methods are designed to speed up this collection process by doing the following

1. Expedite preparing and mailing invoice

2. Accelerate the mailing of payment from customer the bank
3. Reduce the time during which payment received bay the bank remain uncollected fund,
the bank may choose to have all the check mailed one location ore more commonly the
firm may a number of different mail collection point to reduce mailing time.

Table 1 Cash Collection and Disbursement Process

Item Response

No %
1. Make cash collection and disbursement to a customer
a. Manual system
b. Computerized system
c. Hybrid (manual & computerized )
10 100
Total 10 100

According to the above data 100 % of the staff members response implies that the bank strives
to increase its out reach through out its branch and provide financial service using a modern
and efficient service channel like automatic teller machine and the bank use the other cash
collection and disbursement is a manual system. Generally the bank make cash collection

And disbursement today’s hybrid (both manual and computer) system. For Example computer
system is ATM and other counter machine. So, ATM installed or approved by the bank with
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 Ethiopia at and of its branch or office and other places, can initiate or effect by a card holder
money with drawls from / deposits his account or transfer branch between his accounts.

3.2 Make cash collection and Disbursement To Costumer

Internal control of cash received ensures that all cash collection is properly recorded and
deposited. Cash collection arise from many transactions includes cash sales, collection of
customer accounts, receipt of interest and rent, bank loans, sales of assets and owner
investment. With the regards of sufficient personnel control cash disbursement it especially
important for the bank. Most of large theft is occur from payment of fictions invoices. One
key to make cash disbursement it to require that all expenditure to be made by check and
owners key to deny access to the accounting records to person other than the owner who
has the authority to sign checks. This separation of duties help preventing an employee
from holding fraudulent disbursement in accounting records.

Item Response

No %
1. Is there sufficient personal to make cash collection
and disbursement to customer
A. Yes 10
B. No 0

Total 10 100

Table 2. Making cash collection and disbursement

According to the table 2, 100 % of staff member’s response show a that there is a sufficient
personnel to control cash collection and disbursement in the bank .

Every single document is checked by the internal auditors before and after cash is paid
and received

Up on cash collection the amount of the cash collected agreed against the tickets also
for cash payment , cash received and payment ticket agreed.
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During the cash collection the amount of the cash received and the value of ticket have
to be cross checked also for cash payment among of cash collection and disbursement
ticket have to be agreed (cross checked).

Cash collection should be deposited daily

Day to day follow up of cashiers who are responsible to pay cash for the customer.
3.3 Ejective Cash Management System
Cash management is the managing and controlling of cash over institution . also cash
management is keeping enough cash on hand to handle the banks cash business plus
the cash deposited minus cash paid out equals to net cash on hand. To ensure that net
cash on hand meets the banks needs, the manger must estimate with fair accuracy the
amount of cash to be deposited as well as the future cash demand.

Table 3Effective Cash Management system

Item Response

No %
2. Does the bank have effective cash management
system?
A. Yes 10
B. No 0

Total 10 100

According to table 3, 100 % of staff member’s response shows that the bank has effective cash
management system. So effective cash management is more than just preventing bankruptcy, it
improves the profitability and reduce the risk to which the firm is exposed. Thus the goal of
cash manager is to minimize the.

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Amount of cash the firm must hold for use in conducting its normal business activities . In
addition cash management duties in order to execute his/her role effective, such duty are:-

- Bank reactions
- Debt management
- Cash forecasting
- Improving receivable processing
- Speeding the collection
- Receipt forecasting
- Maintaining liquidity
- Reducing idle balance
- Slowing disbursement
- Etc ……
3.4 Purpose For Holding Cash

Nearly every investor holds a certain amount of cash that’s because cash can play vital role
in meeting a short term saving goal or play a large part in a long term asset portfolio .
Whether it’s to meet a short term or long term needs, this is always good reason for holding
cash. Three motives for holding cash balance ,

• Transaction motive:- cash is hold to pay for goods and service . It is useful for
conducting our every day transaction or purchase . i. e to meet payment , such as
purchase, wages, taxes and dividends etc
• Precautionary motive:- cash is relatively safe investment means cash investment
rarely lose value (as can stocks or bonds) and are safety cushion .
• Speculative motive:- cash investment provide / take advantage of temporary
opportunities .

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 Table 4 purpose for holding cash

Item Response

No %
what are some of the purpose that take the bank use the
excess cash deposit ?
a. Transaction motive 6 60
b. Speculative motive 1 10
c. Precautionary motive 3 30
d. other 0 0
Total 10 100

As indicated above table 4, 60 % of staff members response the bank use excess cash deposit is
transaction motivate, 30 % is precautionary motives and 10% response is speculative motives
so, that as we under stranded that it is important to point out that not all firm’s needs for call
for holding cash balance exclusively. Indeed a portion of these need may be meet by holding
marketable equal securities cash equivalent to asset . For most party firm do not hold cash for
all purpose. Speculation, consequently we focus only on the transaction and precaution motive
of the form, with need being meet with balance held both in cash and in MES.

3.5 Treasury Bills.

Treasury bills (T-bills) are very safe short term investment issued by federal government and
some province . Government issue treasury bills in large domination so, Banks and investment
dealer, break this up and sell them to investor .

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 Table 5, Investment in treasury bills

Item Response

No %
2. Does the bank investment in treasury bill ?
A. Yes
B. No 10 100
0 0

Total 10 100

According to the table 5, 100% of the staff members response show that the bank makes
investment in treasury bills. Then the bank makes investment treasury bills, then the retunes on
treasury bills are generally lower then long term investment, however, they are ideal
investment when you can not afford to risk your money.

If you believes the stock market or bond market going to slump. The risk to considered among
the safest investment especially when the have three month or less to maturity, should you
need money before treasury bells mature you can dully sell them on the open market through
an investment dealers

3.6 credit policy used by bank.

The bank, extends various type of loans and advance to the following business sector

domestic trade

import and

agriculture

hotel and tourism

construction

transport and services (education, health etc.) and other.

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 Table 6, credit policy used by bank (CBE)

Item Response

No %
is there strong credit policy used by the bank ?
A. Yes
B. No 10 100
0 0

Total 10 100

According to table 6, 100%of respondents show that the bank used credit policy by the bank is
strong. So, that at present the bank collects a 7.5% interest rate perineum on credit facilities it
extends, the CBE many vary the enters rate based on the directives of the national bank of
Ethiopia (NBE).

In addition as per the new charged various interest rates based on their :

loan repayment history

business strength

collateral strength and

other similar factors.

That is, customer who meet the bank’s performance parameters are charged less interest rate
where as the bank will impose additional 35 penalty interest rate per annum on non performing
loans.

3.7 Repayment Loan By Credit Customer.

According to credit policy of commercial Bank of Ethiopia (CBE), the document required from
customers during loan request. So, it includes .

 A written application that clearly indicated among other , the amount and the purpose
of the loan requested .
 Licenses (as appropriate)

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  Trade and industry license specific to the line of activity and renewed for the
current operational years
 Municipal license
 Investment license
 Registration certificate
- Financial statement (audited as deemed fairly)
 Balance sheet
 I come statement
 Cash flow statement

If the customer can not prepare financial statement and the requested loan amount is small,
he/she to fill out the commercial credit report (CCR) form, which will be pro provided by the
bank, and other.

• Business plan
• A project feasibility study (for new project)
• An ownership certificate for asset or merchandise offered as collateral
• Memorandum and article of association

Table 7 Repayment loan by credit customer

Item Response

No %
do credit customer repays their loan on time?
A. Yes
B. No 10 100
0 0

Total 10 100

As indicated above table 7, 100% of staff members (respondents) shows that credit
customer repay their loan on time. Because of the reason as we Understand , when the
bank makes loan use the acceptable collaterals to the bank are:-

• Building /House
• The building/ house be constructed with the city’s limits; and
• They can be used for residential purpose as ware houses or business organization
• Motor vehicles (trucks, tankers, trailers, combiners, public transport, etc)
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 • Bank guarantee
• Local bank guarantees and foreign bank guarantees
3.8 Auditors In The Bank
Auditing is systematic process objectively obtaining and evaluating evidence regarding
statement (assertions) above economic action and vent to assertion the degree of
correspondence between the statement and established criteria the bank has their own
auditors, auditors means a person who examine financial statement

Item Response

No %
Does the bank has auditors to control the cash ?
A. Yes
B. No 10 100
0 0

Total 10 100

Table 8 auditors

According to the table 100% of the respondents response show that the bank has there own
internal and external auditor. The main responsibility of internal auditors has to audit for
managements as the office of the auditor general does for the government. The internal
auditor audits in the bank monthly, where as external auditor are members of CPA and audit
the bank yearly, therefore,

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 The bank has where own internal and external audit. The internal auditor is an independent
activity established by management to examine the system of control of the bank and to give
recommendation to examine the system where as external audit the bank reports annually for
the management and it report external parties

3.9 Idle Cash

Idle cash is temporary cash surplus and it can invest in short term marketable security. The
market for short term financial asset is known as the many maker the maturity of short term
financial assets that trade in the many market is one year or less.

Most large firms manage their own short term financial assets transacting through banks and
deals, some large firm and money small firm use money management fee is compensation fund
manager. Banks also offer sweep accounts, where the bank takes all excess available funds at a
close of each business day and invest them for the trim.

Item Response

No %
Is there any idle cash in the bank ?
A. Yes 3 30
B. No 7 70

Total 10 100

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According to the data item 30%of the staff members response implies that there is an idle cash
in the bank where as 70% of the population responds shows that there is no an idle cash in the
bank.

Some organization has its own benchmark for its idle cash. But the bank has not benchmark for
idle cash. As manager says there is no idle in the bank. Hence, it has not benchmark. The idle
cash has situational for the existence or not. Because most of the time the debtor (borrower)
fluctuate. This means the borrower pay your borrowing amount for a short period and there is
no other borrower in the bank.

The other reason for the existence of the idle cash is that, the shortage of borrower in the bank.
Inflation is the other reason for the existence of Idle cash or not. If on inflation is the happen
with in the country, there is no idle cash in the bank. This means the customer borrow large
amount of money from the bank. Where ad if there is no inflation with in the country there no
an idle cash. This means the number of borrower has low due to this reason there is an idle
cash in the bank. Generally inflation have the major role for the existence of idle cash or not in
the bank.

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 CHAPTER FOUR
4. finding, conclusion and Recommendation

4.1. finding and conclusions

The major finding obtained through this study are stated below

 The accounting policies adopted by the CBE are interrelated with international financial
principle standards.
 The CBE cash collection and payment system is effective thorough all payment is
authorized before payment and all cash collections are deposited.
 In the CBE there are no idle cash, but there is a fund balance means that when the
estimated revenue is greater than the appropriation.
 The CBE has controlling system of cash receipts and payments by preparation of daily
cash sheet, all payments, should be renumbered checks, preparation of internal receipts
and day to day follow up of cashier responsible part.
 The CBE has source of revenue comes from d3eposite money of the customers.
 The CBE has change system of receipts and payments
 The CBE head of finance check the deposit with bank balance at the time.
 The CBE revenue increase3 day-to day by the presence of good management of cash
and the incremental of customers depositor
 The CBE using computer for fax and internet these facilities create easily transferring of
money from one branch to the other bank branch. This condition increase the numbers
of customer.

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 Generally, We summarized as follows;

 Cash is a medium of exchange that, bank accepts for deposit and immediately credited
to all depositors account. Cash includes, paper currency, coins and check, and cash also
an asset that is readily convertible to any asset; it is easily concealed, transacted and
highly desired for use. Some time near cash item such as marketable security or bank
times a deposit of near cash asset can readily convertible in to cash.
 Cash management is the collection , concentration and disbursement of cash . it
encompasses a banks level of liquidity, its management of cash balance and its short
term investment strategy. As CBE (banks) use efficient cash management through just
preventing bankruptcy of the organization and improves the portability and reduce the
risk to which the firm is expected.
 In order to resolve the uncertainty about cash flow and lack of synchronization between
cash receipts and payments, the bank should develop appropriate straggly for cash
management such as;

Cash inflow and out flows should be planned to project cash surplus or deficit.

The flow of cash should be properly managed

Bank decides about appropriate level of cash balance.

Surplus cash balance should be invested to earn profit.

The CBE cash collection system is aim to reduce the time it take to collets the
cash
 Mail float
 Processing float
 Bank float

The bank must holds the cash for many reason such as transaction motive, speculative motive
and precautionary motive.

Generally CBE make collection and disbursement of cash. Today disbursement of cash is
hybride syst3em (both manual and computerized) i.e. ATM (automsatic tailor machine) and
other counter machine.

CBE use cash budget system is prepared monthly, weekly even in daily basis. Itsd results to
estimate a cash surplus or deficit by using.

 Cash inflow such as sales and collection

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 Cash out flow
i. Payment of account payable
ii. Wage, tax and other expense
iii. Capital expenditure
iv. Long term financial expense
 Cash management service for commercial bank (to branch)
• Zero balance account
• Remote deposit capture
• Credit line
• E- commerce

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4.2 Recommendation

Based on our findings and conclusion the research paper which is conducted in the commercial
bank of Ethiopia on Ticho branch. Through questionnaire, analysis interpretation we
researchers have recommended the following

 Cash holding limit should a little bit high and the securities coverage in order to
minimize exceeding holding limit at the end of cash hour and also minimize risk and
over come the problem of deviance.
 Bank operation (Activities) sis mainly on cash and it is a sensitive item, the most cash
management system should be implemented.
 There have to be proper registry

Among the practice which needs to be encouraged the main ones are the following

 As technology follow they use computerized system of cash collection and

disbursement activities and per parathion of manuals, report and procedures for
daily operation cash is a vital and interesting trend to the bank . it avoids confusion
and ensures consistency or uniformity of operation
 Cash management applied by the bank for controlling cash receipt and payments are
appreciable an it is coherent to the guidelines of internal control in to the universal
cash management process.
 In addition to the above activities, the bank (commercial bank of Ethiopia, Ticho
Branch) made a great effort in mobilization of deposits and increment of cash assets
which are helpful for expansion of loans and advances and other activities, too.

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