CASH
Group 5 2-CFM
Jigs Parco
Niña Malagueño
Mikael Agbayani
Lance Rivera
Internal Control
Defined as the procedures and processes
used by a company/firm to:
 Safeguard its assets
 Process information accurately through
the Financial Statements
 Ensure compliance with laws and
regulations to the (BIR, SEC, BSP and IC)
 Integrated
Framework- The standard by which
companies design, analyze and evaluate internal
control

Objectives of Internal Control- are used to
provide reasonable assurance that:
 Assets are safeguarded and used for business
purposes and strategies
 Business information is accurate
 Employees and managers comply with the laws and
regulations of the company
Elements of Internal Control
Control Environment- the overall attitude of the
management
and
employees
about
the
importance of internal controls. This is the tone at
the top which is a gauge on how the management
is firm in implementing controls. This includes the
following:
 Management’s Philosophy and operating style
(Emphasis on Internal Controls)
 The company’s organizational structure (Planning
and Controlling)
 The company’s personnel policies (hiring, training,
evaluation, compensation and promotion)
 Risk
Assessment- Identifying & Assessing risks
and their impact on their organization
 Customer requirements, competitive threats,
regulatory changes and changes in
economic factors. Management should
identify such risks, analyze their significance,
assess their likelihood of occurring and take
necessary actions to minize them.
 Credit risk- the risk that the borrower can’t pay
off his/her financial obligations
 Control
Procedures- provide reasonable assurance
that business that business goals will be achieved,
includes the prevention of fraud
Competent personnel, rotating duties and
mandatory vacations.
2. Separating responsibilities for related operations
3. Separating operations, custody of assets and
accounting
4. Proofs and security measures
Mechanisms/Practices/Procedures
Address risks identified
1.


 Monitoring-
used to locate weakness and improve
controls. Monitoring often includes observing
employee behavior and the accounting system for
indicators of control problems
 Internal
Auditor- responsible for day-to-day
monitoring controls
Warning Signs of Internal Control
Problems (From People)
1.
2.
3.
4.
5.
Abrupt change in lifestyle( without
winning the lottery)
Close relationships with the suppliers
Refusing to take a vacation
Frequent borrowing from other
employees
Excessive use of alcohol and drugs
Warning Signs of Internal Control
Problems (From the Accounting System)
1.
2.
3.
4.
5.
Missing documents or gaps in transaction
numbers (fraud transactions)
Unusual increase in customer refunds
Differences between daily cash receipts
and bank deposits (could mean receipts
are being pocketed before deposited)
Sudden increase in slow payments
Backlog in recording transactions (possibly
an attempt to delay detection of fraud)

Information and Communication
Information about the control environment, risk
assessments control procedures and monitoring
is used by management for guiding operations
and ensuring compliance with reporting, legal
and regulatory requirements.
 Used to dissimilate information throughout the
company
 Communication from top-level to the bottomlevel or vice versa
 Makes a firm a cohesive unit
 Management also uses external information to
assess events

Cash
 Includes
coins, currency, checks and
money orders, notes, bills
 Money on deposit with a deposit with a
bank that is available for withdrawal
 Most liquid asset
 Most likely asset to be stolen or used
improperly
 Can be On hand or In Bank
 Available for immediate and general use
Internal Controls Related to
Cash




Segregation of Duties – Accounting/Recording
Function or Cash Custodianship
Voucher System– Disbursement Functions
-Represented by a voucher- Legal documents
that serves as proof of authority to pay cash or
issue EFTs
Electronic Funds Transfer --- Payments or
Withdrawals
Issuance of Official Receipts– Deposits to bank
-made when cash is
received
Common Fraud Related to
cash
 Kiting-
Happens when someone has 2 or
more bank account. Employed at the
end of the month
 Lapping- Process of Theft. Wrong
declaration of cash collections
 Window Processing- Applies also with
Financial statements. Makes Financial
statements appear better
Cash Received from Sale
 Is
an important control to protect cash
received in over –the-counter sales is a
cash register.
 The use of a
cash register to
control cash is
shown:
Cash Received in the Mail
 Cash
is received in the mail when
customers pay their bills. This is usually in
the form of checks and money orders
Cash Received by EFT
 Cash
may be also be received from
customers through electronic funds
transfer (EFT).
 Electronic funds transfer (EFT) is the
electronic exchange, transfer of money
from one account to another, either
within a single financial institution or across
multiple institutions, through computerbased systems.
Bank Reconciliation

Comparison of:

Two independently maintained records of a business’s
cash



Differences between the two records generally
arise because of timing differences.



The company’s Cash account (T-Account, the book
balance)
The bank statement
Deposits were made but after the bank statement was
printed and mailed.
Checks were written but have not cleared the bank
when the bank statement was printed mailed.
Reconciliations ensure that the two records agree.
Bank Reconciliation
Items for reconciliation:
 Items RECORDED by the company but not
yet recorded by the bank:


Deposits in transit
Outstanding checks
Bank Reconciliation
Items for reconciliation:
 Items recorded by the bank BUT NOT YET
recorded by the company.

Bank collections


Electronic funds transfers



deposits received directly by the bank from customers
Both payments and deposits
Service charges and the cost of printed checks
Interest revenue earned on checking account
 Errors
by the company or the bank
Bank Reconciliation
 The
adjusted bank balance must equal
the adjusted books balance

Book Balance = Ending Cash Account
 This
is how we ensure Control over Cash
Reconciling Items
Bank Balance
 Add
deposits in transit
 Subtract outstanding
checks
 Add or subtract
corrections of bank
errors, as appropriate
Book Balance
 Add
bank collection
items, interest
revenue, and EFT
receipts
 Add or subtract
corrections of book
errors, as appropriate.
CASH EQUIVALENT
Cash equivalents are investments that can
be readily converted to cash. Common
examples of cash equivalents include
commercial paper, treasury bills, short term
government bonds, marketable securities,
and money market holdings. An item should
satisfy the following criteria to qualify for
cash equivalent.
 The
investment should be short term. They should
mature in less than three months. If they mature in
more than three months they will be classified as
other investments.
 They should be highly liquid. This means that they
should be easily sold in the market. The buyers of
these investments should be easily available.
 They should be convertible to known amounts of
cash. This means that their market price should be
available and this market price should not be
subject to significant fluctuations.
 They
should not be too risky. There should be very
little risk of changes in their value. This means that
equity shares cannot be classified as cash
equivalents. But preferred shares purchased shortly
before the redemption date can be classified as
cash equivalents.
Examples



Treasury bills: These items are debt instruments the
U.S. Department of Treasury issues that mature in
less than one year.
Commercial paper: This term refers to notes
receivable with no collateral to back up the debt.
Commercial paper has a maturity date of less
than 270 days.
Money market funds: Money market accounts are
similar to checking accounts, except they
generally pay a higher interest rate on deposited
funds than regular checking. However, they also
usually require maintaining minimum balances.
CASH DISBURSEMENT
 Cash
outflow or payment of money to
settle obligations such as operating
expenses, interest payments for loans and
accounts receivables during a particular
order to carry out business activities.
 Cash
disbursement is a process by which a business
pays out money to a person or organization
typically related to operating expenses for that
business. While the name implies this type of
payment is made out in cash, which is possible, it is
common for payments to be made as checks or
credit transactions.
Forms of Cash Disbursement
 Cash
 Plastic
Money
 Check
 Warrants
 Electronic
Fund Transfer
Petty Cash Fund
 Petty
cash is a small amount of
discretionary funds in the form
of cash used for expenditures where it is
not sensible to make any disbursement
by check, because of the inconvenience
and costs of writing, signing and then
cashing the check.
 As
expenditures are made, the custodian of the
fund will reimburse employees and receive a petty
cash voucher with a receipt/invoice attached in
return. At any given time the total of cash on hand
plus reimbursed vouchers must equal the original
fund.
Resources
 http://www.readyratios.com/reference/a
ccounting/cash_and_cash_equivalents.ht
ml
 http://www.wisegeek.com/what-is-cashdisbursement.htm
 http://en.wikipedia.org/wiki/Petty_cash
 http://www.cliffsnotes.com/moresubjects/accounting/accountingprinciples-i/cash/the-petty-cash-fund
Resources
 Accounting
Principles Using Excels for
Succes
Author: James Reeve, Johan Duchac, Carl
Warren
 Financial
Accounting Volume one 2013
edition
Author: Conrado Valix, Jose Peralta,
Christian Aris Valix