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Management has the option of utilizing a number of methods for controlling cash within their business. For example, they have the means of setting up a petty cash fund for minor transactions and disbursements associated with certain expenditures such as postages, taxi fairs, or toll payments (Porter, 2018). In addition to setting up accounts of this nature, management has the option of creating internal controls which is a number of policies/procedures designed to protect assets like cash. A company is in needs to have strong internal controls and separation of duties so that the work of one department acts as a check on another in the protection of their assets (Porter, 2018).

For Fitbit Inc, according to their 2020 10-K form, they had a cash balance of $518 million, a number that is a company low when compared to their reports since 2015. This cash balance is too high due to the fact that their retained earnings for the year were in the negative. The last time Fitbit Inc. had a high cash balance that worked to their advantage was in 2015 when their balance was $664 million but their retained earnings was also positive, and their working capital was much more than their cash balance. Having a significant cash balance while having a not so significant working capital, all while accumulating retained earning deficit is a recipe for a company that is on its way to gloom. This gloom is hopefully avoided with the recent merger with Google Inc.

Regarding basic internal controls, it is important to ensure that assets don’t fall victim to the whims and potential lack of a moral compass for employees. Within my company, each employee has the ability to purchase office supplies that they may need with company funds. Although this is the case, that privilege is restricted to small financial transactions like the need for office items like pens and notebooks that contribute to a <$200 purchase. For items with a bigger financial impact such as printers, employees then would automatically have to have the approval of their direct manager before transactions go through, and for items above $5k for example there would need to be 2 levels of approval. All of these transactions are documented and reviewed on a yearly basis by management for accuracy and for the sake of an accurate audit trail that explains operating related expenses within a particular functional team (Kenton, 2020).

References:

Porter, G., & Norton, C. (2018). Using financial accounting information: The alternative to debits and credits (10th ed.). Retrieved from https://www.cengage.com (Links to an external site.)

Fitbit, Inc. (2020). 2019 annual report. Investor.fitbit.com

Kenton, W. (2020, September 16). Understanding Internal Controls. Retrieved January 20, 2021, from https://www.investopedia.com/terms/i/internalcontrols.asp