Explain the applications of internal control principles to cash reciept and cash disbursements
Internal control principles are essential for the proper management of cash receipts and cash disbursements. These principles provide a systematic and organized framework for handling cash in an organization. The applications of internal control principles to cash receipt and cash disbursements are:
1. Segregation of Duties: This principle is applied by separating the responsibilities of handling cash receipts and disbursements. In this way, an individual does not have control over the entire cash handling process, which reduces the risk of fraud and errors.
2. Authorization and Approval: This principle is used by ensuring that only authorized and approved individuals have access to cash receipts and disbursements. This reduces the risk of unauthorized transactions and misappropriation of funds.
3. Adequate Documentation: This principle is applied by keeping adequate documentation for every cash transaction. This includes invoices, receipts, and bank statements, which help to track every cash transaction and reduces the risk of errors and fraud.
4. Physical Control: This principle is applied by ensuring that cash is physically secure. This is done through the use of secure safes, lockboxes, and other secure storage options.
5. Periodic Reconciliation: This principle is applied by regularly reconciling the cash receipts and disbursements with the cash balance in the accounting system. This helps to identify any discrepancies and ensures that the cash balance is accurate.
Overall, the applications of internal control principles to cash receipt and cash disbursements help to reduce the risk of fraud, errors, and misappropriation of funds. By implementing these principles, an organization can ensure that its cash handling processes are secure and efficient.