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Chapter 4

COMMERCE 1AA3 Chapter Notes - Chapter 4: Bank Reconciliation, Internal Control, Bank Statement

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Aadil Merali Juma

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Internal Control of Cash
Internal control refers to policies and procedures that are designed to
o Properly account for assets
o Safeguard assets
o Ensure accuracy of financial records
Smart hiring and separation of duties
An organizational plan and system of procedures designed, implemented, and maintained by
company management and the board of directors to deal with risks to the business that have
been identified and that relate to:
1. Reliailit of opa’s fiaial eods and reporting
2. Copa’s ailit to opeate effetiel ad effiietl
3. Copa’s opliae ith legal euieets
Objectives of Internal Control
1. Safeguard assets and records
2. Encourage employees to follow company policy
3. Promote operational efficiency
4. Ensure accurate, reliable accounting records
5. Comply with legal requirements
Procedures of Internal Control
1. Smart hiring practices attract top quality employees, train them well to be competent, and
rotate them when needed
2. Separation of Duties dividing responsibilities for transactions, a business limits the chances for
fraud, and promotes accuracy of accounting records. Separated into:
a. Asset handing
b. Record keeping
c. Transaction approval
Bank Reconciliation
Cash balance per books is rarely equal to the cash balance per bank statement
A bank reconciliation identifies the reasons for the difference
o Outstanding Cheques amounts are wrong because if you send a cheque and they
do’t go to the ak the the alaes do’t eual
o Errors might also be a reason for wrong balances (plus/minus)
o Deposit in Transit money coming
o NSF oe oues ad eta fee is haged if aout giig oe does’t hae
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