Cash Control Unit 25

Internal Accounting Control Internal Accounting Control for a business refers to the method and procedures used to: Protect the assets from waste, loss, theft, and fraud Ensure reliable accounting records Ensure accurate and consistent application of the firm’s policies Evaluate the performance of departments and personnel

Cash Control Procedures P 1: Separation of Duties P 2: Immediate Listing of Cash Receipts P 3: Daily Cash Proof P 4: Daily Deposit of Cash P 5: Payment by Cheque P 6: Periodic Audit P 7: Monthly Bank Reconciliation

Separation of Duties Different people should carry out the task of recording cash received and the task of actually handling the cash. This minimizes the chance of theft.

Immediate Listing of Cash Receipts All cash should be recorded as soon as it is received. In a sales setting, the cash register is often the first record of a cash sale. At the end of the day, the register “tape” is compared to the cash receipts by the manager. The customer helps prevent sales from being recorded at a lower amount and the sales person pocketing the difference by checking their receipt.

Prenumbered sales slips (source documents from unit 8!!) Numbering of documents is used to prevent errors and losses due to theft of to the use of false documents If a mistake is made and a prenumbered document must be voided, the document is marked void and kept with the other documents. This ensures that every document is accounted for.

Cash Received by Mail The person who opens the mail should prepare a list of the cheques received. A copy of this list is forwarded to the person responsible. A second copy is sent to the accounting department. Sometimes a third copy is kept on file for the future reference of the mail opener.

Daily Cash Proof A NEW ACCOUNT (for the journal/ledger): CASH SHORT AND OVER account is used to record shortages and overages of cash. See p. 533 for examples of the daily cash proof For those of you who have experience in retail, the daily cash proof is often located on the deposit envelope that goes to the bank. The daily cash proof is the source document for the journal entry. Cash shorts are recorded in the debit column (a decrease in owner’s equity). Cash overs are recorded in credit (an increase in owner’s equity).

Daily Deposit of Cash Every day the cash receipts of a business (cash sales and cheques received) should be deposited in the bank. NO large amounts of money left on the premises. Amount of the deposit will be the same as the amount recorded in the cash receipts journal.

Payment by Cheque All cash payment should be made by cheque. Cheques are prenumbered and spoiled cheques are marked void. Each cheque written should be accompanied by an invoice of voucher to provide verification that the payment is being made legitimately.

Petty Cash Procedures When making a small purchase for a business, sometimes the petty cash is used instead of a prenumbered cheque. Petty cash is a small amount of cash kept on-hand for a business to use. An account must be created in the journal and the ledger called “Petty Cash”. Petty cash vouchers must be filled out when petty cash is used. Specific guidelines must be followed to replenish or change the amount of the petty cash account.