ARVI MARIE S. CALONZO BSA 4B Applications of Internal Control to Cash Receipts —Cash receipts may result from cash sales; collections on account from customers; the receipt of interest, rents, and dividends; investments by owners; bank loans; and proceeds from the sale of noncurrent assets. —The following internal control principles explained earlier apply to cash receipts transactions as shown: ?     Establishment of responsibility – Only designated personnel (cashiers) are authorized to handle cash receipts.      Segregation of duties – Different individuals receive cash, record cash receipts, and hold the cash. ?     Documentation procedures – Use remittance advice (mail receipts), cash register tapes, and deposit slips. ?     Physical, mechanical, and electronic controls – Store cash in safes and bank vaults; limit access to storage areas; use cash registers. ?     Independent internal verification – Supervisors count cash receipts daily; treasurer compares total receipts to bank deposits daily.      Other controls – Bond personnel who handle cash; require vacations; deposit all cash in bank daily. Applications of Internal Control to Cash Disbursements —Cash is disbursed to pay expenses and liabilities or to purchase assets. —Internal control over cash disbursements is more effective when payments are made by check, rather than by cash, except for incidental amounts that are paid out of petty cash. —Cash payments are generally made only after specific control procedures have been followed. —The paid check provides proof of payment. — The principles of internal control apply to cash disbursements as follows: ? Establishment of responsibility – Only designated personnel (treasurer) are authorized to sign checks. ?     Segregation of duties – Different individuals approve and make payments; check signers do not record disbursements. ?     Documentation procedures – Use prenumbered checks and account for them in sequence; each check must have approved invoice. ?     Physical, mechanical, and electronic controls – Store blank checks in safes with limited access; print check amounts by machine with indelible ink.      Independent internal verification – Compare checks to invoices; reconcile bank statement monthly. ?     Other controls – Stamp invoices PAID. Electronic Funds Transfer (EFT) System —A new approach developed to transfer funds among parties without the use of paper (deposit tickets, checks, etc. ). The approach, called electronic funds transfers (EFT), uses wire, telephone, telegraph, or computer to transfer cash from one location to another. Use of a bank contributes significantly to good internal control over cash.      Minimizes the amount of cash that must be kept on hand. ?     Facilitates the control of cash because a double record is maintained of all bank transactions – one by the business and one by the bank. ?     The asset account Cash maintained by the company is the “flip-side” of the bank’s liability account for that company. It should be possible to reconcile these accounts—make them agree—at any time. ?     Bank statements – Each month the company receives a bank statement showing its bank transactions and balances.


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