You are a business consultant providing information and advice to future small b
ID: 2779515 • Letter: Y
Question
You are a business consultant providing information and advice to future small business owners. Controls are especially important with respect to cash. Three of them are clear assignment of responsibility, specific procedures for documentation, and independent internal verification of the data. Create a PowerPoint presentation for a seminar aimed at future business owners who will be dealing with large amounts of cash. Explain the importance of the three areas of cash control and make recommendations for procedures that could be implemented.
Explanation / Answer
Cash control is a process that is used to verify the complete nature and accurate recording of all cash that is received, as well as any cash disbursements that take place. As a broad principle of responsible financial accounting, this process takes place in any environment where goods and services are bought and sold. As such, businesses, non-profit organizations and households all employ its basic tenets.
To fully understand cash control, it is helpful to understand what is meant by cash, when it comes to financial accounting. Along with referring to currency and coin, this term is also understood to include forms of financial exchange like money orders, credit card receipts, and checks. Essentially, any type of financial exchange that can be immediately negotiated for a fixed value qualifies.
Internal Control Objectives
Your text defines internal control as an organizational plan to:
Safeguard company assets
Encourage employees to follow laws, regulations, and company policy
Promote operational efficiency
Ensure accurate, reliable accounting records
The Bank Account--an Effective Way to Protect Cash
It probably has occurred to you that, of all the assets owned by a company, the most important asset is cash. Cash has no memory, nor do you need to have it registered to you to allow you to use it. If an unscrupulous individual is able to get possession of cash, they can spend it illegally, and in many cases, will not get caught. For all of these reasons, a company should maintain only a small portion of its cash on the premises, and trust a bank to hold the bulk of its cash. Additionally, if the bank is holding the company's money, a record is kept of the deposit as well as the later withdrawal.
Most people keep their spending money in a checking account. By writing checks for expenditures, an individual or company will have proof that an employee or vendor was paid. However, periodically, the checking account must be reconciled--to ascertain that all checks were cashed properly, and that deposits were recorded by the bank in a timely manner.
Bank Reconciliation
Most adults these days have a checking account, and the text discussion probably confirms what you already know from experience.
An accountant performs a bank reconciliation in order to verify the correct amount of cash in the account. You might think that the bank statement is a reliable indicator of the bank balance--and it is, except for timing differences that happen between the time a check or deposit has been made, and the time at which it appears on the bank statement.
When dispensing cash from the petty cash fund, a voucher is filled out. A voucher is a numbered document with a space to write the amount spent and a description of the purchase. Note that when the first expenditure was made for postage, cash was taken from the box in the amount of $35. A voucher (number 101 perhaps) would be filled out for $35 and placed into the box. At that point, the box would contain $65 cash plus a $35 voucher. The main control feature of the fund is that the sum of the remaining cash plus the vouchers ($65 + $35) must add up to the petty cash total, in this case, $100.
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