Internal control & cash transactions:

A well designed accounting system will help managers to control the business. Internal control represents the organisational plan & all the related measures adopted by an entity to ensure the orderly & efficient conduct of it's business.



Management's objectives in setting up internal control involve:



Effective systems of internal control:

All businesses with an effective system of internal control will have the following:

  1. Competent & reliable personnel
    1. All hired employees should have 3 references that are checked & have the necessary proven skills & experience that can be verified.
    2. Training & paying competitive salaries will help to build a competent staff.
    3. Training other employees across verious jobs to help with any absences & vacancies.
  2. Assignment of Responsibility:
    1. clearly defined responsibilities per job or assignment
  3. Proper Authorization:
    1. any deviations from the norm of activities should be properly authorized by the proper supervisors
  4. Separation of duties:
    1. the entire accounting function should be seperated into different tasks for different individuals
    2. ie. Accountants keeping track of inventory instead of salespersons decreases fraud and loss
    3. two individuals should be needed for transactions ie. Those who receive cash in accounts receivable should not be the individual who goes to the bank for a deposit.


Limitations of internal control: