Question

In: Accounting

Controls and Processes" discusses the revenue and cash collection process and controls. Exhibit 8-16 shows some...

Controls and Processes" discusses the revenue and cash collection process and controls. Exhibit 8-16 shows some cash receipts controls and risks. What are some of these controls? How can a company help protect itself in the cash collection process from a potential fraud?  

Solutions

Expert Solution

Exhibit 8-16 shows some cash receipts controls which are as follows:

Authorisation:

  • Only Designated person opens ans closes bank accounts.
  • Cash Reciepts are approved prior to bank deposit.

Segregation of duties:

  • Separation of custody of cash from responsibility of reconciling bank accounts.
  • Separation of custody of cash from accounts recievable record keeping which minimises the risk of invalid cash receipt or ommitted transactions.
  • Separation of duties related to cash reciepts journal preparation, credit approval, inventory handling,information systems and general accounting.

Security:

  • Physical Controls in areas where cash is recieved.
  • There should be proper IT controls over computer records and physical controls over record storage areas.
  • Cash reciepts should be deposited in bank on daily basis.

Records and Documents:

  • Preparation of deposit slips on prenumbered forms.
  • Preparation of customer accounts statements.
  • Preparation of cash reciept journals and accounts recievable re cords only when cash has actually been recieved.

Independent Checks and Reconciliation:

  • cash counting and comparison of daily deposit with cash reciept journal.
  • preparation of bank reconciliation statement.
  • matching of remmittance advice with cash reciept journal.

A company can protect itself from a fraud in cash collection process by segregating duties and impleting variety of internal controls to protect its valuable cash.


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