CASH
$$$$$$$$$$$$$
Chapter 6
Objective
Describe the nature of cash and the importance of internal control over
cash
Summarise basic procedures for achieving internal control over cash
receipts
Summarise basic procedures for achieving internal control over cash
payments
Describe the nature of a bank account and its use in controlling cash
Contents
Importance of
Internal Control cash and cash
controls
Internal Control for
Bank Account
Cash
Internal Control
• Policies, procedures within organisation (effected
by BOD and BOM) to give reasonable assurance
of achieving objectives:
• Asset protection
• Effectiveness of operation
• Compliance with laws and regulations
Internal Control
CONTROL RISK INFORMATION CONTROL MONITORING
ENVIRONMENT. ASSESSMENT AND ACTIVITIES
COMMUNICATION
CONTROL
ENVIRONMENT
• It is the responsibility of top management to
make it clear that the organization values
integrity and that unethical activity will not be
tolerated
RISK
ASSESSMENT
• Companies must identify and analyze the
various factors that create risk for the business
and must determine how to manage these
risks.
CONTROL ACTIVITIES
To reduce the occurrence of fraud, management must design
policies and procedures to address the specific risks faced by
the company.
Control activities:
Supervision or
Segregation of Authorisation of Retention of Physical
monitoring of
duties transactions records safeguards
operations
Segregation of duties
• Separating authorisation, custody, and record
keeping roles to prevent fraud or error by one
person.
• No one person should (altogether):
• Initiate transaction
• Approve transaction
• Record transaction
• Reconcile balances
• Handle assets
• Review reports
Authorization of
transactions
• Review of particular transactions
by an appropriate person.
• Normally by supervisor.
Retention of records
• Maintaining documentation to substantiate transactions.
Supervision or monitoring of operations
• Observation or review of ongoing operational activity.
Physical safeguards
• Usage of cameras, locks, physical barriers, etc. to protect property, such
as merchandise inventory.
Internal Control for Cash
Purchase
Sale (FG, raw
material)
Cash
Debt
Bank
Collecting
Importance of cash and
cash controls
• Cash: coins, paper money, cheques, and fixed deposits
with banks
• Cash is needed for everyday operation of any business
• High risk of loss → safeguard needed
Cash Receipt Controls
Cash Receipt Controls
Cash Controls
OVER-THE-
COUNTER
RECEIPTS
Important internal
control principle—
segregation of record-
keeping from physical
custody.
Cash Disbursement
Cash Disbursement Controls
Bank Account
Bank statement
Bank Account
• Bank account could be used as a Control Over Cash as it provides a second
record of cash transactions.
• Payment should not be made out by cash!!!!
THANK YOU