Cash Management and Control Flashcards
Cash Definition
a term used in accounting to identify money
Practically every transaction eventually results in an inflow or outflow of cash
Cash is the asset most subject to theft
Principles of Cash Control
separation of responsibility for handling and custodianship of cash from maintaining records about cash
banking for each day’s cash receipts.
making all payments by electronic transfer to a bank account of another person or entity or by cheque
Control of Cash Received through the Mail
procedures for the control of cash received in the mail are based heavily on the separation of record keeping and custodianship.
Control of Cash Receipts from Cash Sales
the basis for internal control here is the principle of separation of record keeping from custodianship
Control of Cash Short and Over
when several individual cash sales are recorded, it is inevitable that, in spite of internal control measures, some errors are made by cash register operators and customers are given the wrong change
cash short and over account
- debit because of shortage, credit if surplus
- if the account has a debit balance, it means there was net shortage, and is posted to sundry expenses in P&L
- if credit balance then posted to other income in P&L
Control of Cash Payments
employees designated to approve invoices for payment should have no responsibility for preparing cheques or other payment instruments
employees responsible for signing cheques or approving electronic transfers of cash should have no invoice approval or accounting responsibilities
Key Elements of Cash Payment Control
use of a business bank account to enable all major payments to be made by cheque or electronic transfer
use of a petty cash fund to cover small incidental cash payments.
Cheque Accounts
cheques, as with other forms of currency, are subject to misappropriation, and every effort should be made to protect the interests of all parties to a cheque
internal control is strengthened because the bank record of deposits received, cheques paid and transfers provides an independent cross‐check on the internal cash records of the entity
Electronic Funds Transfer
advances in mobile phone technology have also
contributed to their increasing use
opens up the possibility of a chequeless society
internet banking has increased security risk and users must make sure their online access details are protected by using a firewall, anti‐spyware and antivirus software
The Bank Statement
an entity’s bank statement is recorded as a liability to the bank
the most common entries in the credit column are the deposits made to the account
the most common entries in the debit column are cheques and EFTs
The Petty Cash Fund
to avoid the expense and inconvenience of writing many cheques to cover minor or petty expenses for things like postage stamps and miscellaneous supplies, many entities establish a petty cash fund
Establishing the Petty Cash Fund
established by writing a cheque to be given to the petty cashier, who cashes the cheque and places the proceeds in a lockable box to which only they have access
Making Payments from the Petty Cash Fund
as cash payments are made from the fund, the recipient signs a petty cash voucher or receipt prepared by the petty cashier
the voucher shows the amount paid, the purpose of the payment and the date paid
a voucher is prepared for every payment made from the fund and is placed in the petty cash box
Reimbursing the Petty Cash Fund
payments from the fund will gradually decrease the cash available, the petty cashier must be reimbursed periodically by writing a cheque equal to the amount of the sum of the vouchers in the fund.
each voucher is stamped paid by the cashier
Cash Budgeting
a cash budget is a projection of expected future cash receipts and cash payments
only cash items are included and non‐cash items such as depreciation are excluded
