The need to control cash is clearly evident and has many aspects. Without the proper timing of cash flows and the protection of idle cash, a business cannot survive.
Companies protect their assets by (1) segregating employee duties, (2) assigning specific duties to each employee, (3) rotating employee job assignments, and (4) using mechanical devices. This video highlights the problems and controls needed when dealing with cash:
When a merchandising company sells its merchandise inventory, it may receive cash immediately or several days or weeks later. A clerk receives the cash immediately over the counter, records it, and places it in a cash register. The presence of the customer as the sale is rung up usually ensures that the cashier enters the correct amount of the sale in the cash register. At the end of each day, stores reconcile the cash in each cash register with the cash register tape or computer printout for that register.
Did you know? The cheapest and easiest internal control test is by involving the public. If a company requires all transactions be entered in the cash register, the company can do a "promotion" that will verify employees are following this. The promotions would be like "If you receipt has a red star on the back, get a free cookie" or "If you do not get a receipt, receive a free drink". Sound familiar? The public is now looking for a receipt for each transaction and will ask if they don't receive it. The benefit of finding theft will outweigh the cost of giving away a little free food.
Payments received later are almost always in the form of checks. Stores prepare a record of the checks received as soon as they are received. Some merchandising companies have customers send the payments directly to the bank instead of the company itself. Although businesses vary their specific procedures for controlling cash receipts, they usually observe the following principles:
Companies also need controls over cash disbursements. Since a company spends most of its cash by check, many of the internal controls for cash disbursements deal with checks and authorizations for cash payments. The basic principle of segregation of duties also applies in controlling cash disbursements. Following are some basic control procedures for cash disbursements:
In the next section, we discuss the bank checking account. If you have a personal checking account, some of this information will be familiar to you.
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