Internal Accounting Control: Essential Principles and Procedures

Types of Internal Control

Accounting Internal Control

These are the tools that implement detailed management to control operations.

Administrative Internal Control

These consist of procedures and records management that help in achieving the objectives of the company.

Internal Accounting Control

This involves procedures or records that relate primarily to accounting.

Internal Accounting Control Purposes

• Transactions are made in accordance with general approval.
• Transactions are recorded as necessary.

Principles of Internal Accounting Control

• Responsibility must be clearly stated.
• Division of responsibilities within the structure.
• Segregation of operations and accounting.
• Access to assets is permitted only by authorization and management.
• The activity of registered assets is reviewed against existing assets.

Cash Control and Effective Management

Effective controls ensure that all transactions are carried out efficiently.

Principles of Effective Control

• Accurately forecast incoming revenue.
• Accurately forecast planned expenditures.

Safety Measures for Cash

• Require payment by check.
• Deposit cash daily in the bank.
• Verify bank deposits.
• Reconcile bank accounts.
• Reconcile expenditure budgets.
• Reconcile sales budgets.

Principles of Internal Control

• Separate activities for personnel responsible for managing cash.
• All cash receipts should be deposited in the bank.

Security System for Effective Control

• Accurately forecast incoming revenue.
• Prioritize fixed costs before sales budgets.

Documents Used for Effective Control

Receipts

• Bank deposits
• Maturity investments
• Bills receivable and payable
• Expense documentation
• Bank loans
• Recovery of loans

Deliveries

• Payment to suppliers
• Payroll payments
• Overpayment of benefits
• Payment of overheads
• Investments

Cash Management Definitions

Tonnage Style

The practice of reviewing cash frequently.

Petty Cash Fund

A fund of cash maintained for relatively small expenditures.

Bank Statements

A detailed account that banks send to customers monthly.

Contents of a Bank Statement

• Customer name and address
• Account number
• Statement period (month and year)