As the most liquid of assets, cash is untraceable and may be stolen or used inappropriately, such as paying personal expenses with company funds, depositing cash receipts into personal accounts, or making unauthorized payments to company employees. Cash controls exist to protect cash from theft and misuse, as well as ensure that all cash transactions are recorded accurately. Cash control measures are necessary for both cash receipts and cash payments. As a cash internal control tool, a bank account provides an independent record of most transactions. At the end of the period, the bank statement will be compared with the company's records to determine the source of any differences. Variances will be evident upon reconciliation of the two records.
At A Glance
Controlling cash received from sales is a nine-step process that protects cash and its handlers.
Cash received in the mail uses a remittance advice slip to aid in controlling cash. Controlling cash received by electronic funds transfer (EFT) requires an authorized release of funds.
- The voucher system is used to manage authorization of payments to vendors and other creditors. Electronic funds transfer (EFT) can be used to pay employees, vendors, and others, and it requires proper authorization by the company.
Petty cash, a special-purpose fund, requires close cash controls.
- The use of bank accounts has many advantages over retaining cash within the company. Banks have multiple ways of documenting cash transactions, which helps ensure cash control.
- Bank accounts are often used because they serve as an independent record of business transactions and are used to process EFTs. Cash controls are effective when the cash balances can be verified by bank records.
- A bank reconciliation includes two sections: bank balance and company records. Cash controls are usually effective when adjustments can be made to reconcile the bank balance and the company balance.