Internal check regarding cash receipts and cash payment

Internal check regarding cash receipts and cash payment

1. ANAND SARAN 142005 INTERNAL CHECK WITH REGARD TO CASH RECEIPTS AND CASH PAYMENTS

2. INTERNAL CHECK Internal check is an accounting procedure whereby routine entries for transactions are handled by more than one employee in such a manner that the work of one employee is automatically checked against the work of another for detection of errors and irregularities. It is a division of duties that does not permit one individual to carry out all stages of transactions. An internal check is intended to prevent frauds.

3. INTERNAL CHECK AS REGARDS CASH RECEIPTS In the business there is a greater risk of cash misappropriation. So there is a need for safety measures. Following system may be adopted to control over cash receipts. 1. Cashier: There should be a separate clerk known as cashier to deal with the receipts of cash. As soon as cash is received, it should be entered in a rough cash book or diary. The cashier should not be authorised to keep cash with him, to make expenditure out of it and to make entries in the ledger and other books of prime entry.

4. 2. Presence Of Responsible Officer : All remittances should be opened by the cashier in the presence of a responsible officer who is not connected with the office of the cashier, and should be crossed immediately by means of a rubber stamp as ‘ Not negotiable – A/c Payee only.’

5. 3. Bank Reconciliation: All receipt should be banked daily. It is also necessary that from time to time, bank reconciliation statements should be prepared to reconcile bank and cash balances. 4. Counter Foil: Receipt of money should be in duplicate or its counter foil must be prepared and kept for reference unused receipt books must be kept safe custody under lock and key.  

6. 5. Issuance of Receipt: A printed serially numbered receipt should be issued for the amount received. They should not be prepared by someone who is connected with entering remittances in the rough cash book or diary.   6. Daily Deposit: All the receipts of cash and cheque must be deposited on the same day or next morning. There should be a separate person to take money to the bank and he should not be connected with the cash transactions.

7. 7. Debtors: The debtors or institutions from whom cash is received should be advised to collect proper receipts from the head office. They should also be directed to send payments through crossed cheques.   8. Spoiled Receipts: Spoiled receipts should be cancelled and must not be detached from the counterfoils or totally removed from the receipt book. If some alteration is made in the receipt already written, it should be properly initialled.   9. Cash Sale: There should be a sound system of cash sale. Recording method of cash sales should be well organized under proper control and supervision.

8. 10. Collection of Cash By Agents: Three copies of cash receipts should be prepared by the agent. One should be given to the pay. Second should be sent to office and third should be kept by the agent. Agent should also be paid by the cheque. 11. Confirmation Statement: Statement of accounts should be sent at regular intervals to the debtors for the confirmation of balance. It will also reduce the chances of frauds.

9. INTERNAL CHECK AS REGARDS CASH PAYMENTS 1.Separate Cashier: A good system of internal check is one in which a separate person has charge of making payments. He should have no connection with the receipt of cash.   2.Use Of Cheque : Cheques should be used for all the payments except the petty cash. It is the first measure for internal control in case of payments. 3.Use Of Crossed Cheque : Before dispatching the cheques these should be crossed. So any person cannot draw the amount.      

10. 4.Safety Of Cheque Books : Blank cheque books should be under the safe custody of the responsible official so that these may not be misused for payment by any fraud. 5.Checking Invoices: Proper regulations should be in force for checking invoices and other relevant correspondence before cheques are prepared. Such vouchers should be stamped ‘paid’ before the cheques are signed.

11. 6.Authorised Signatories: All cheques and bills should be scrutinised and signed by the proper authority. 7.Entry In Cash Book : Payment should be recorded in the cash book as the payment is made. 8.Authorized Signature :- Those persons should sign on the quiches who are authorized to sign.

12. 9.Payments of Special Nature: A strict regulations should be in force to sanction payments of a special nature. Such a work should be entrusted to directors or high officers. It is also a good practice if cheques involving heavy amounts are signed by more than one responsible person. 10.Confirmation of Accounts: Confirmation of accounts with the creditors should be made through direct correspondence.

13. 11. Bank Reconciliation Statements: Bank Reconciliation Statements should be prepared to reconcile bank and cash balances from time to time. 12. Petty Cash Payments : Petty cash payments should be kept under proper control. 13. Wages : A proper system should be in operation for the payment of wages.