AFM101 Chapter Notes - Chapter 7: Cash Cash, Internal Control, Money Order
10 Jun 2018
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reporting, the effectiveness and efficiency of the operations, and its compliance with
applicable laws and regulations.
- Well-designed system of internal controls prevents inadvertent errors and removes the
opportunities for individuals to steal, misrepresent, defraud or embezzle assets from a
company.
- No audit is necessary, but auditors will find it unusual if an executive certified a deficient
system.
- Internal control system must respond to different sets of activities with different types of
control.
- The following practices help minimize bad debts:
1. Require approval of customer’s credit history by a person independent of the sales
and collection functions.
2. Monitor the age of trade receivables periodically, and contract customers with
overdue payments.
3. Reward both sales and collection personnel for speedy collection so that they work
as a team.
LO6 Report, control and safeguard cash.
Definitions:
- CASH: money or any instrument that banks will accept for deposit and immediate credit
to the company’s account, such as a cheque, money order, or bank draft.
o (1) Cash on hand, (2) cash deposited in banks and (3) other instruments that
meet the definition of cash.
- CASH EQUIVALENTS: short-term, highly liquid investments that are readily
convertible to known amounts of cash and that are subject to an insignificant risk of
change in value.
(1) CASH MANAGEMENT
- Effective cash management goes beyond protecting cash from theft, fraud or loss though
carelessness.
- Other cash management responsibilities include:
a. Accurate accounting so that reports of cash flows and balances may be
prepared.
b. Controls to ensure that cash is on hand to meet (1) current operating needs,
(2) maturing liabilities and (3) unexpected emergencies.
c. Prevention of the accumulation of excess amount of idle cash. Idle cash
earns no revenue; therefore, it is often invested in securities to earn revenue
until is needed for operations.
(2) INTERNAL CONTROL OF CASH
- Cash is an asset most vulnerable to theft & fraud internal controls procedures should
focus on cash.
- Effective internal control of cash should include:
1. Separation of duties related to cash handling and recordkeeping.
a. Receiving & disbursing cash individual responsible has no authority to sign
cheques.
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Document Summary
Afsa education reporting, the effectiveness and efficiency of the operations, and its compliance with applicable laws and regulations. Well-designed system of internal controls prevents inadvertent errors and removes the opportunities for individuals to steal, misrepresent, defraud or embezzle assets from a company. No audit is necessary, but auditors will find it unusual if an executive certified a deficient system. Internal control system must respond to different sets of activities with different types of control. Cash equivalents: short-term, highly that are readily convertible to known amounts of cash and that are subject to an insignificant risk of change in value. investments liquid (1) cash management. Effective cash management goes beyond protecting cash from theft, fraud or loss though carelessness. Idle cash earns no revenue; therefore, it is often invested in securities to earn revenue until is needed for operations. (2) internal control of cash. Cash is an asset most vulnerable to theft & fraud internal controls procedures should.
