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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.
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1.
2.
The following set of internal controls are
specifically for cash:
Separate Duties – The same people that
handle cash should not be the ones keeping
the records for the cash.
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.
3.
4.
Deposit Funds Intact – Cash received during
the day should not be used for paying bills
or for borrowing by employees.
Make payments by cheque or electronic
transfer of funds – in order to have a record
of payments made that correspond to the
bank balance.
5.
6.
7.
Endorse cheques “for deposit only” so they
can not be cashed in any other way.
Prepare deposit slips in duplicate.
Prepare a bank reconciliation monthly.
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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”
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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”.
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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.
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Step 5 – Record the discrepancy items on the
bank reconciliation.
MOTTO – Put an item where it’s not!
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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.