2 Cash Controls Cash Receipts Controls Establishment of Responsibility Only designated personnel are authorized to handle cash receipts (cashiers)Documentation ProceduresUse remittance advice (mail receipts), cash register tapes, and deposit slipsIndependent Internal VerificationSupervisors count cash receipts daily; treasurer compares total receipts to bank deposits dailySegregation of DutiesDifferent individuals receive cash, record cash receipts, and hold the cashPhysical, Mechanical, and Electronic ControlsStore cash in safes and bank vaults; limit access to storage areas; use cash registersHuman Resource ControlsBond personnel who handle cash; require employees to take vacations; deposit all cash in bank dailyIllustration 8-4SO 3 Explain the applications of internal control principles to cash receipts.
3 Cash Controls Discussion Question Q8-6. At the corner grocery store, all sales clerks make change out of one cash register drawer. Is this a violation of internal control? Why?See notes page for discussionQuestion 8-3 (textbook)This is a violation of the internal control principle of establishing responsibility. In this case, each sales clerk should have a separate cash register or cash register drawer.SO 3 Explain the applications of internal control principles to cash receipts.
4 Cash Controls Discussion Question Q8-11. The management of Sewell Company asks you, as the company accountant, to explain (a) the concept of reasonable assurance in internal control and (b) the importance of the human factor in internal control.See notes page for discussionQuestion 8-8 (textbook)( a ) The concept of reasonable assurance rests on the premise that the costs of establishing control procedures should not exceed their expected benefit.(b) The human element is an important factor in a system of internal control. A good system can become ineffective through employee fatigue, carelessness, or in difference. Moreover, internal control may become ineffective as a result of collusion.SO 3 Explain the applications of internal control principles to cash receipts.
5 Cash ControlsCash consists of coins, currency, checks, money orders, and money on hand or on deposit in a bank.Cash receipts come from:cash salescollections on account from customersreceipt of interest, rent, and dividendsinvestments by ownersbank loansproceeds from the sale of noncurrent assetsSO 3 Explain the applications of internal control principles to cash receipts.
6 Over-the-Counter Receipts Illustration 8-4SO 3 Explain the applications of internal control principles to cash receipts.
7 Review Question Cash Controls Permitting only designated personnel to handle cash receipts is an application of the principle of:a. segregation of duties.b. establishment of responsibility.c. independent check.d. Human resource controls.See Page 358
8 Cash Controls Cash Disbursements Controls Generally, internal control over cash disbursements is more effective when companies pay by check, rather than by cash.Applications:Voucher systemPetty cash fundSO 4 Explain the applications of internal control principles to cash disbursements.
9 Cash Controls Cash Disbursements Controls Documentation Procedures Illustration 8-6Documentation ProceduresUse prenumbered checks; checks must have an approved invoice; require employees to use corporate credit cards for reimbursableexpensesEstablishment of ResponsibilityOnly designated personnel are authorized to sign checks (treasurer) and approve vendorsIndependent Internal VerificationCompare checks to invoices; reconcile bank statement monthlyHuman Resource ControlsBond personnelwho handle cash;require employeesto take vacations;conduct backgroundchecksSegregation of DutiesDifferent individuals approve and make payments; check signers do not record disbursementsPhysical ControlsStore blank checks in safes, with limited access; print check amounts by machine in indelible ink
10 Discussion Question Cash Controls Q8-17 Joe Griswold Company’s internal controls over cash disbursements provide for the treasurer to sign checks imprinted by a checkwriting machine in indelible ink after comparing the check with the approved invoice. Identify the internal control principles that are present in these controls.See notes page for discussionQuestion 8-14 (textbook)SO 4 Explain the applications of internal control principles to cash disbursements.
11 Review Question Cash Controls The use of prenumbered checks in disbursing cash is an application of the principle of:a. establishment of responsibility.b. segregation of duties.c. physical, mechanical, and electronic controls.d. documentation procedures.SO 4 Explain the applications of internal control principles to cash disbursements.
12 Cash Controls Cash Disbursements Controls Voucher System Network of approvals, by authorized individuals, to ensure all disbursements by check are proper.A voucher is an authorization form prepared for each expenditure.SO 4 Explain the applications of internal control principles to cash disbursements.