Chapter 6

Cash management strategies

(a) encourage early collection of receivables (b) delay payment of liabilities (c) keep only necessary assets, ( d) plan expenditures, (e)invest excess cash

over-the-counter cash receipt control procedures

- sales are recorded on a cash register after each sale, and customers are given a receipt - cash registers hold a locked-in record of each transaction and often are linked with the accounting system - custody over cash is separate from recordkeeping. the clerk who has access to cash in the register cannot access accounting records. the record keeper cannot access the cash

Principles of internal control

Establish responsibilities. Maintain adequate records. Insure assets and bond key employees. Separate recordkeeping from custody of assets. Divide responsibility for related transactions. Apply technological controls. Perform regular and independent reviews.

Separate recordkeeping from custody of assets

an employee who has access to an asset must not have access to that asset's accounting records

insure assets and bond key employees

assets should be insured while employees that handle cash or easily transferable assets should be bonded

Maintain adequate records

good record keeping helps protect assets and help managers monitor company activities.

cash account

includes currency, coins, checks, and deposits in a bank accounts

Perform regular and independent reviews

regular reviews of internal controls should be performed by outside reviewers, preferably auditors

Establish responsiblities

responsibility for a task should be assigned to one person. if responsibility is not established, determining who is at fault is difficult.

Divide responsibility for related transactions

responsibility for a transaction should be divided between two or more individuals or departments. one person's work is a check on the others to prevent errors. this is not a duplication of work.

cash equivalents

short-term, liquid investment assets meeting two criteria: (1) convertible to a known cash amount and (2) close to their due date usually within 3 months. ex: treasury bill

Apply technological controls

use technology such as ID scanners to protect assets and improve control