1. INTERNAL CONTROL AND CASH Accounting Principles, Eighth Edition
CHAPTER 8
INTERNAL CONTROL AND CASH
Accounting Principles, Eighth Edition

2. Mechanical and Electronic
Internal Control
Principles of Internal Control
Illustration 8-3
PHYSICAL, MECHANICAL, AND ELECTRONIC CONTROLS
Physical
Mechanical and Electronic
LO 2 Identify the principles of internal control.

3. Principles of Internal Control
INDEPENDENT INTERNAL VERIFICATION
Records periodically verified by an employee who is independent.
Discrepancies reported to management.
OTHER CONTROLS
Bond employees.
Rotate employees’ duties and require vacations.

4. Limitations of Internal Control
Costs should not exceed benefit.
Human element.
Size of the business.
LO 2 Identify the principles of internal control.

5. Internal Control over Cash Receipts
Cash Controls
Internal Control over Cash Receipts
Establishment of Responsibility
Only designated personnel are authorized to handle cash receipts (cashiers)
Documentation Procedures
Use remittance advice (mail receipts), cash register tapes, and deposit slips
Independent Internal Verification
Supervisors count cash receipts daily; treasurer compares total receipts to bank deposits daily
Segregation of Duties
Different individuals receive cash, record cash receipts, and hold the cash
Physical, Mechanical, and Electronic Controls
Store cash in safes and bank vaults; limit access to storage areas; use cash registers
Other Controls
Bond personnel who handle cash; require employees to take vacations; deposit all cash in bank daily
Illustration 8-5
LO 3 Explain the applications of internal control principles to cash receipts.

6. Cash Controls
Cash consists of coins, currency, checks, money orders, and money on hand or on deposit in a bank.
Cash receipts come from:
cash sales
collections on account from customers
receipt of interest, rent, and dividends
investments by owners
bank loans
proceeds from the sale of noncurrent assets
LO 3 Explain the applications of internal control principles to cash receipts.

7. Over-the-Counter Receipts
Cashier’s Department
Over-the-Counter Receipts
Sales Department
Illustration 8-7
Prepare daily summary
Prepare deposit slip
Cashier ring up sales
Supervisor
reads register totals
makes cash counts
prepares cash count sheets
Bank
(deposit)
Treasurer
(verification)
Accounting
(record)
See page 347 & 348

8. 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. other controls.
LO 3 Explain the applications of internal control principles to cash receipts.

9. Internal Control over Cash Disbursements
Cash Controls
Internal Control over Cash Disbursements
Generally, internal control over cash disbursements is more effective when companies pay by check, rather than by cash.
Applications:
Voucher system
Electronic funds transfers (EFT) system
Petty cash fund
LO 4 Explain the applications of internal control principles to cash disbursements.

10. Internal Control over Cash Disbursements
Cash Controls
Internal Control over Cash Disbursements
Establishment of Responsibility
Only designated personnel are authorized to sign checks (treasurer)
Documentation Procedures
Use prenumbered checks and account for them in sequence; each check must have an approved invoice
Independent Internal Verification
Compare checks to invoices; reconcile bank statement monthly
Physical, Mechanical, and Electronic Controls
Store blank checks in safes, with limited access; print check amounts by machine in indelible ink
Segregation of Duties
Different individuals approve and make payments; check signers do not record disbursements
Other Controls
Stamp invoices
PAID
Illustration 8-8
See illustration 8-8 page 350

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.
LO 4 Explain the applications of internal control principles to cash disbursements.

12. Internal Control over Cash Disbursements
Cash Controls
Internal Control over Cash Disbursements
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.
LO 4 Explain the applications of internal control principles to cash disbursements.

13. Internal Control over Cash Disbursements
Cash Controls
Internal Control over Cash Disbursements
Electronic Funds Transfers (EFT)
Disbursement systems that uses wire, telephone, or computers to transfer cash balances between locations.
LO 4 Explain the applications of internal control principles to cash disbursements.

14. Internal Control over Cash Disbursements
Cash Controls
Internal Control over Cash Disbursements
Petty Cash Fund - Used to pay small amounts.
Involves:
establishing the fund,
making payments from the fund, and
replenishing the fund.
LO 5 Describe the operation of a petty cash fund.