Internal Control Procedures Over Cash

• Cash is money or any financial instrument a bank accepts for deposit giving immediate credit to a customer's account.
• Examples of cash: checks, money orders, and cashier's checks
• Cash equivalents are investments with maturity dates of 3 months or less.
• Examples of cash equivalents: CDs, money market accounts, and treasury bills
• Cash equivalents are investments since cash is receivable at maturity.
• The misappropriation of assets (stealing cash/inventory) is the most common business fraud.
• Maintaining good internal control procedures over cash helps to prevent fraud.

Good Internal Control Procedures Over Cash

• Separation of duties means separating Authorization, Custody, and Record Keeping tasks.
• "ARC" is an acronym for Authorization, Record Keeping, and Custody.
• All bank deposits of cash and checks must be made daily.
• The lockbox system has customers sending checks to a post office box controlled by the bank.
• The bank opens the check each day and directly deposits it into the company's bank account.
• Companies receiving checks should restrictively endorse all checks "For Deposit Only" as soon as they are received.
• Restrictive endorsement helps prevent cash from being misplaced.
• Payment approvals (accounting department) should be separate from actual cash payments (treasury department).
• Checks should be pre-numbered to ensure all checks are accounted for and no payments are booked twice.
• A bank reconciliation should be prepared each month for all bank accounts to ensure bank/book records are monetarily accurate.

Petty Cash

• Businesses use petty cash to keep a small amount of cash on hand for incidental payments.
• To ensure good internal controls over petty cash, a company should:
• Have a designated petty cash custodian
• Designate a specific amount of cash to establish the petty cash fund
• Support all petty cash disbursements with a sequentially numbered petty cash ticket (like a purchase order) and a receipt.
• Make periodic surprise counts; the amount of cash on hand plus the petty cash tickets/receipts in the box should equal the originaly established petty cash fund.

Cash Over and Short

• Cash Over and Short accounts for a cash overage or shortage when replenishing petty cash.

The Bank Reconciliation

• Bank reconciliation is the process of matching the ending bank balance (per the bank statement) with the ending book balance (per the general ledger).