Accounting Controls for Cash

Internal Control is the set of procedures used to protect the assets from theft and waste.

Good internal control protects both the business and the employees.

The business does not take chances on the honesty of its employees

Employees are not exposed to unnecessary temptation.

Internal Control

The following set of internal controls are specifically for cash:

1. Separate Duties – The same people that handle cash should not be the ones keeping the records for the cash.

2. Deposit Funds Daily – Cash should not be left in the office (even if locked in a safe place). It should be deposited to the bank each day.

Cash Control

3. Deposit Funds Intact – Cash received during the day should not be used for paying bills or for borrowing by employees.

4. Make payments by cheque or electronic transfer of funds – in order to have a record of payments made that correspond to the bank balance.

Cash Control

5. Endorse cheques “for deposit only” so they can not be cashed in any other way.

6. Prepare deposit slips in duplicate.7. Prepare a bank reconciliation monthly.

Cash Control

A bank reconciliation is the procedure used to determine why the balance on the bank statement does not agree with the balance in the company’s ledger.

This procedure is similar to “balancing a chequebook”

The Bank Reconciliation

Step 1: Have the following three items on hand: bank statement, bank reconciliation from previous month and a printout of the company’s general ledger bank account.

Step 2: Write a proper heading (who, what, when) heading and then divide the page down the middle. Label one side “Bank’s Record” and the other side “Company’s Record”.

Procedure for Bank Reconciliation

Step 3: Enter the ending balance from the bank statement on the “Bank’s Record” side and the final balance from the company ledger account Bank on the “Company’s Record” side.

Step 4: Find the discrepancy items; that is, the items that are causing the two balances to be different. This is the most difficult and the most important part.

Step 5 – Record the discrepancy items on the bank reconciliation.

MOTTO – Put an item where it’s not!

This requires a methodical approach. Step 1 – Find the items that are on the

company records and on the bank record. Mark them with a pencil. These items are “cleared” and are not discrepancy items.

Step 2 – Everything else without a mark is a discrepancy item and must be placed on the bank reconciliation.

Finding Discrepancy Items