| 1. | Cash
and cash equivalents are reported as a single current asset on the balance sheet.
Cash equivalents
are investments that are so quickly and reliably convertible
into cash that they are considered the
equivalent of cash. Examples are money
market funds, short-term certificates of deposit, and U.S.
treasury securities
with maturity dates of not more than three months when purchased. |
|
Restricted cash is cash that that can only be spent for a designated purpose.
Restricted cash is reported
on a balance sheet as either a short-term or
long-term investment, depending on when the money is
likely to be used. A
compensating balance is a minimum cash balance that must be maintained in an
account. A compensating balance is usually imposed by a lender or as the result
of a financial agreement.
Compensating balances should be disclosed in the
footnotes to financial statements. | | 2. |
Internal control means the policies, procedures, and organizational design that
a company creates for the
purpose of: |
| |
 | safeguarding
assets | | reporting
accurate and reliable accounting information | | encouraging
operating efficiency | | |
The following internal controls are specifically designed to safeguard cash: |
| | |
|
| A
checking or savings account: A checking or savings account eliminates the need
to maintain large amounts of cash on business premises. Also, maintaining a checking
account provides a second
record of cash receipts and payments that can be
reconciled to business records. | |
| A
bank reconciliation: A bank reconciliation is used to check the accuracy of a
company’s record of
cash transactions and balances against a bank’s
record of cash transactions and balances for that
company. Also, a bank reconciliation
determines the true cash balance. | |
| An
imprest petty cash system: An imprest petty cash system provides both physical
and record-
keeping controls for small amounts of cash that are kept on location
at a business. The system
maintains the cash in a locked location, assigns
petty cash responsibility to a single person, requires
authorization for disbursements,
and maintains a record of expenditures and remaining cash. |
|
| Use
of credit cards: Using credit cards eliminates the need to maintain cash on location.
Secondly, a credit card provides a detailed record of expenditures. |
|
| A
voucher system: A voucher system is designed to control cash payments. A voucher
system
requires detailed documentation for validation and verification before
a payment can be authorized
and recorded. Payment is made only after validation,
verification, authorization, and a liability
recording are completed. The
voucher system is especially useful in larger organizations. |
|
| Cash
receipts procedures: Cash receipts are especially vulnerable to theft. Cash receipts
procedures
are designed to physically safeguard cash and to provide detailed
records both of cash received and
cash that should have been received, given
the record of sales. | |
| Basic
internal control principles: Eight basic internal procedures apply to all assets,
but especially to
cash, which is the easiest asset to steal. |
|
| Internet
and e-commerce controls: These controls, such as passwords, encryption, and firewalls
prevent unauthorized access to account information and to online accounts.
They also prevent
unauthorized access to accounting records that potentially
could be used to cover up theft of assets. | |
Internal
control is not a guarantee against theft; it is intended to be a barrier to theft
and reduce the
probability of asset loss. Human error, collusion, carelessness,
neglect, and fatigue are potentially
serious weaknesses of internal control. |
|
