Internal Controls & Bank Reconciliation BAF3M Mr. Singh

10.4 Accounting Controls for Cash An accounting system that promotes employee honesty, accuracy and efficiency is considered to have good internal control Internal Control – a set of procedures established to protect the assets from theft, waste and ensure accurate accounting data, encourage efficiency and adhere to company policies

10.4 Accounting Controls for Cash Where possible 2 people should process and prepare accounting documents independently of each other and their work must agree. The person who records transactions or prepares accounting records should not also control or handle the physical assets. All assets should be kept in a safe place.

10.4 Accounting Controls for Cash Only a few key employees should be allowed to approve and authorize transactions. An independent accountant should periodically carry out an audit to ensure that the accounting system is being followed correctly. Responsibilities should be clearly established. It should be easy to tell who is responsible for errors or missing assets.

10.4 Accounting Controls for Cash SEPARATE DUTIES – the people handling the cash should not be the people keeping the records for the cash DEPOSIT FUNDS DAILY – cash receipts for the day should be deposited by the end of the day DEPOSIT FUNDS INTACT – cash received during the day should not be available for making payments or for borrowing by employees.

10.4 Accounting Controls for Cash MAKE ALL PAYMENTS BY CHEQUE OR ELECTRONIC TRANSFER OF FUNDS. ENDORSE CHEQUES “FOR DEPOSIT ONLY” – then each cheque can only be credited to the business’s bank account and cannot be cashed in any other way RECONCILE BANK ACCOUNTS MONTHLY – this is a routine procedure to determine why the balance on deposit in the bank does not agree with the balance of cash shown by the books of the company.

10.4 Accounting Controls for Cash Bank Reconciliation A routine procedure to determine why the balance on deposit in the bank does not agree with the balance of cash shown by the books of the company Usually outstanding cheques or late deposits

Bank Reconciliation When a company’s cash balance in the bank does not match it’s balance in the books, we need to do a bank reconciliation Many times its because cheques weren’t cashed, deposits haven’t cleared, errors occurred etc.

Bank Reconciliation Cont’d Here are transactions that are probably on in the company’s records but not in the bank statement Deposits in Transit - Deposits which have been sent by the company to the bank but have not been received by the bank at proper time before the bank issues the statement balance Outstanding Cheques - cheques which have been issued by the company but were not presented or cleared before the bank issued their statement.

Bank Reconciliation Cont’d Following are the transactions which usually appear in bank statement but not in company's cash account: Service Charges: Service charges may have been deducted by the bank. Such charges are usually not known to the company before they issue the bank statement.

Bank Reconciliation Cont’d Interest Income: If any interest income has been earned by the company on its bank account, it is not usually entered in company's cash account before the issuance of bank statement. NSF Checks: NSF stands for "not sufficient funds". These are the checks deposited by the company in bank account but the bank is unable to receive payment on those checks due to insufficient funds in the payer's account.

Calculations for Bank Reconciliation

Balance as per Company’s Ledger  $$$ Balances as per Bank   Statement Add  Interest Income  Deposits in Transit Note Receivables Services Charges Deposits Less  NSF cheques Outstanding cheques Bank Service Fee Bank CollectionFee Adjusted Balance