Chapter 10
Cash Controls
318
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In Summary
Apply cash controls
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Cash must be recorded immediately when it is received so it can be tracked from receipt to
deposit in the business bank account.
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Cash should be stored in a secure place until it can be deposited to the business bank account.
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Regular bank deposits should be made to ensure a minimal amount of cash is kept on site.
Prepare journal entries for cash rounding, debit and credit transactions
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All sales should be recorded at the actual amounts calculated and not rounded.
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An account to track the cash over and short should be used. This includes any rounded, over
and short amounts.
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Many businesses will allow customers to pay using debit or credit cards. A sale paid for by
credit card or debit card will result in a small transaction fee the business must pay to the
bank or processing company.
Prepare a bank reconciliation and related journal entries
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A bank reconciliation compares the bank statement to the cash ledger account to ensure no
errors have been made.
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Amounts added or deducted by the bank which do not appear in the ledger must be added or
deducted from the cash ledger balance. These amounts must also be recorded in the journal
to update the cash ledger account.
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Amounts added or deducted by the business which do not appear in the bank statement must
be added or deducted from the bank balance.
Prepare a petty cash fund and record related journal entries
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A petty cash fund is used to pay for small, incidental expenses. A cheque is cashed and the
money is kept by a petty cashier in a secure location.
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As cash is spent, receipts are placed in the petty cash box to explain why the cash was spent.
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A comparison of remaining cash and the total receipts may indicate a cash overage or shortage.
The receipts and any over or short is recorded in a journal entry.
Apply general business controls
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Controls are procedures and methods used to protect assets, monitor cash payments, ensure
transactions are authorized and generally make sure the accounting records are accurate.
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Generally, internal controls can be classified as preventive (i.e. to stop an incident before it
happens), or detective (i.e. to discover an incident after it happens).
