Cash Controls Flashcards
Week 4 Objective 4
What is the projected percentage of workplace fraud involving company assets?
80% of all workplace frauds involve employee theft of company assets; 90% of those involved cash
What are “internal cash controls”?
clearly assigned individuals have authority to collect, hold, and pay cash
cash records examined often
controls supported by a record keeping system
cash safeguarded in a vault or bank
Three areas of internal controls to strengthen cash controls:
bank reconciliations
cash over and short
petty cash
What is bank reconciliation?
the process of reconciling any differences between a company’s accounting records and the bank’s accounting records
What is a “bank statement”?
a document received, typically monthly, from the bank returning all checks processed during the period with a detailed record of the activity of the account
Why is the “normal balance” backwards on a bank statement? (deposits that increase your account are “credits”)
Because your account is a liability to the bank and the bank statement is a record of their accounting on your account, thus when you increase your account you are increasing their liability
What purpose does bank reconciliation perform?
A control function by identifying errors and providing an inspection of detailed records that deter theft
Also, serves as a transaction detection function by identifying transactions performed by the bank and the business can make the necessary entries in its records (ie service fees)
What types of transactions typically needs reconciled between the bank and business records?
Outstanding checks - check issues and recorded by the company that hasn’t been cashed by the recipient
Deposits in transit - amount received and recorded by the company but has not been recorded by the bank
Service Charges - fees charged by the bank for services provided
Non-Sufficient Funds Checks - a check returned to the depositor (company) because the writer of the check didn’t have the money to cover it
Debit and Credit Memos - Debit memos recorded by the bank but not the company causes the bank balance to be smaller than balance (utility autopay); Credit Memos increases bank balance (note receivable)
Errors in recording transactions
What is an “outstanding check”?
A check issues and recorded by the company that hasn’t been cashed by the recipient
What is a “deposit in transit”?
An amount received and recorded by the company but has not been recorded by the bank
What are Debit and Credit memos in regards to bank reconciliation?
Debit memos recorded by the bank but not yet recorded by the business cause the bank balance to be smaller than the cash account balance
Credit memo could result if the bank collected a note receivable for the business and deposited the funds in the business’s account
What is step 1 of bank reconciliation?
Compare deposits on the bank statement to the deposits debited to the cash account.
Deposits in transit should be added to the “cash balance from the bank statement”.
What is step 2 of bank reconciliation?
Compare the paid (or cancelled) checks that are electronically returned with the bank statement to the amounts credited to the cash account.
Outstanding checks should be subtracted from the “cash balance from the bank statement”
What is step 3 of bank reconciliation?
Look for items on the bank statement that have not been debited or credited to the cash account (ie NSF checks, debit/credit memos, service fees).
What is step 4 of bank reconciliation?
If the adjusted cash balances are not equal, search for errors.
Most common error is transposition errors, a check is written for $823 but recorded as $283.
All errors made by the company should be added/subtracted from the “cash balance from company records”
All errors made by the bank should be added/subtracted from the “cash balance from the bank statement”
