Week 7 - Cash management

Question 1

Principle of cash management

Answer 1

.Reduce collection time for accounts receivable
.Postpone payments of accounts payable.
.Keep inventory levels to a minimum
.Invest surplus cash.
.Plan for capital expenditures

Question 2

Why is an internal control system needed?

Answer 2

A good internal control system
is needed to ensure that all cash is received and is duly banked intact, and that all payments
are authorised by responsible personnel.

Question 3

Bank reconciliation helps prove…

Answer 3

the accuracy of both the entity’s and the bank’s records.

Question 4

Why is a bank reconciliation needed even with EFT payments?

Answer 4

A bank reconciliation is still necessary for control purposes. There may still be some
transactions that occur using cash and cheques so there may be outstanding deposits
and cheques at the end of the period.

Even with electronic transfers, these are often processed overnight on computer systems and transactions can appear on bank statements a day after they actually occurred.

Question 5

Explain briefly the significance of each of the following in a comprehensive system of control over cash transactions.

Answer 5

With the segregation of cashier’s duties from other functions, the cashier should not have
access to the accounting records (other than cash journals). By segregating the duties of the
cashier, any fraud will remain undetected only if the cashier colludes with other members of
staff. This will reduce the possibility of the cashier misappropriating funds and covering this
up by altering the accounting records without being found out.

Question 6

Daily banking principle means…

Answer 6

all cash received must be banked daily intact (in its entirety) –> will reduce the chance of cash being misappropriated

Question 7

Imprest system

Answer 7

management allocates a certain ‘float’ or
‘retainer’ of cash to be used for petty expenses. This ‘float’ must be maintained from period
to period until management revises it and allocates an increase in cash funds for petty
expenses.

Question 8

Bank reconciliation process for cheques and deposits (CR balance)

Answer 8

add outstanding deposits
deduct unpresented cheques

Question 9

Bank reconciliation process for cheques and deposits (DR balance)

Answer 9

deduct outstanding deposits
add unpresented cheques

Question 10

Internal control and cash receipts

Answer 10

Clear lines of responsibility - Only designated people act as cashiers

Separation of record keeping and custodianship -People who handle cash do not bank cash or record receipts in the accounts

Division of responsibility for related transactions - Mail clerk records receipts through the post while another person supervises

Mechanical and electronic devices - Use of cash registers and EFTPOS equipment

Internal control - One senior staff member records cash receipts daily; another compares total receipts with daily deposits

Physical controls - Use of safe on premises for temporary cash storage, and night safe for deposits

Other - Prenumbered sales dockets and receipt forms if done manually; all receipts banked intact each day

Question 11

Internal control and cash payments