Lecturer: Mr. Yiannis Papamichael
The Control of Cash Transactions-Cash Controls
Cash is a company's most liquid asset, which means it can easily be used to acquire
other assets, buy services, or satisfy obligations. For financial reporting purposes, cash
includes currency and coin on hand, money orders and checks made payable to the
company, and available balances in checking and savings accounts. Most companies
report cash and cash equivalents together. Cash equivalents are highly liquid, short‐
term investments that usually mature within three months of their purchase date.
Examples of cash equivalents include U.S. treasury bills, money market funds, and
commercial paper, which is short‐term corporate debt.
Cash is a liquid, portable, and desirable asset. Therefore, a company must have adequate
controls to prevent theft or other misuses of cash. These control activities include
segregation of duties, proper authorization, adequate documents and records, physical
controls, and independent checks on performance.
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Segregation of duties. Cash is generally received at cash registers or through
the mail. The employee who receives cash should be different from the employee
who records cash receipts, and a third employee should be responsible for making
cash deposits at the bank. Having different employees perform these tasks helps
minimize the potential for theft.
Proper authorization. Only certain people should be authorized to handle cash
or make cash transactions on behalf of the company. In addition, all cash expenses
should be authorized by responsible managers.
Adequate documents and records. Company managers and others who are
responsible for safeguarding a company's cash assets must have confidence in
the accuracy and legitimacy of source documents that involve cash. Important
documents such as checks, are pre numbered in sequential order to help
managers ascertain the disposition of each document. This helps prevent
transactions from being recorded twice or from not being recorded at all. In
addition, documents should be forwarded to the accounting department soon after
their creation so that recordkeeping can be handled professionally and efficiently.
Allowing documents that describe cash transactions to go unrecorded for an
unnecessarily long period of time increases the likelihood that fraudulent or
inaccurate records will pass undetected through the accounting department.
Physical controls. Cash on hand must be physically secure. This is accomplished
in a variety of ways. Cash registers should contain only enough cash to handle
customer transactions. When a cashier finishes a shift—or perhaps more
frequently—excess cash should be moved from cash registers to a safe or another
location that provides additional security. In addition, daily bank deposits are made
so that excess cash does not remain on the premises. Blank checks, which can be
used for forgery, are stored in locked, fireproof files.
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Lecturer: Mr. Yiannis Papamichael
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Independent checks on performance. Employees who handle cash or who
record cash transactions must be prepared for independent checks on their
performance. These checks should be done periodically and may be done without
fore-warning. Having a supervisor verify the accuracy of a cashier's drawer on a
daily basis is an example of this type of control.
Other cash controls. Most companies bond individuals that handle cash. A
company bonds an employee by paying a bonding company for insurance against
theft by the employee. If the employee then steals, the bonding company
reimburses the company. Companies may also rotate employees from one task to
another. Embezzlement or serious mistakes may be uncovered when a new
employee takes over a task. Although specific cash controls vary from one
company to the next, all companies must implement effective cash controls.
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