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Vũ Quốc Thông (PhD.) 10/10/2020 Chapter Vũ Quốc Thông (PhD.) Objective Describe the nature of cash and the importance of internal control over cash Summarise basic procedures for achieving internal control over cash receipts Summarise basic procedures for achieving internal control over cash payments Describe the nature of a bank account and its use in controlling cash Vũ Quốc Thông (PhD.) 10/10/2020 Contents  Importance of cash and cash controls  Internal Control  Internal Control for Cash  Bank Account Importance of cash and cash controls  Cash: coins, paper money, cheques, and fixed deposits with banks  Cash is needed for everyday operation of any business  High risk of loss  safeguard needed Vũ Quốc Thông (PhD.) 10/10/2020 Internal Control  Policies, procedures within organisation (effected by BOD and BOM) to give reasonable assurance of achieving objectives:  Asset protection  Effectiveness of operation  Compliance with laws and regulations Internal Control  Control Environment  Risk Assessment  Information and Communication  Control Activities Components  Monitoring Vũ Quốc Thông (PhD.) 10/10/2020 Internal Control Risk Assessment Monitoring Control Environment Control Activities Information and Communication Internal control Control activities:  Segregation of duties  Authorization of transactions  Retention of records  Supervision or monitoring of operations  Physical safeguards Vũ Quốc Thông (PhD.) 10/10/2020 Segregation of duties  Separating authorization, custody, and record keeping roles to prevent fraud or error by one person  No one person should (altogether):  Initiate transaction  Approve transaction  Record transaction  Reconcile balances  Handle assets  Review reports Authorization of transactions  Review of particular transactions by an appropriate person  Normally by supervisor 10 Vũ Quốc Thông (PhD.) 10/10/2020 Retention of records  Maintaining documentation to substantiate transactions 11 Supervision or monitoring of operations  Observation or review of ongoing operational activity 12 Vũ Quốc Thông (PhD.) 10/10/2020 Physical safeguards  Usage of cameras, locks, physical barriers, etc to protect property, such as merchandise inventory 13 Internal Control for Cash Purchase (goods, raw material) Sale Cash Debt Collecting Bank 14 Vũ Quốc Thông (PhD.) 10/10/2020 Internal Control for Cash Cash Receipts Cash Payments 15 Internal Control for Cash Receipts  Received from Cash Sales Cash Register 16 Vũ Quốc Thông (PhD.) 10/10/2020 Internal Control for Cash Receipts  Received in the Mail 17 Internal Control for Cash Payment  Payment by cheques, petty cash or electronic funds transfer  Supporting documents are needed 18 Vũ Quốc Thông (PhD.) 10/10/2020 Bank Account  Business may have several bank accounts Check Check Payee Bank (Drawee) Drawer Money 19 Bank Account  Bank statement 20 10 Vũ Quốc Thông (PhD.) 10/10/2020 Bank Account  Bank account could be used as a Control Over Cash as it provides a second record of cash transactions  Payment should not be made out of the cash receipts! 21 11