Internal Controls for Cash Receipts - Financial Accounting

All right now let's look at specific internal controls or examples of internal controls for

cash receipts meaning the cash going out. First one is going to be over-the-counter receipts. I

want to make sure I have over-the-counter receipts. So all records coming in excuse me

this is cash coming in all records of cash are on the cash register at the time of each sale

I want to make sure that every sale that I have goes through cash register because that gives me

a written record of what is coming in so I can make sure that my cash is meeting what it should

be. A lot of times when you run a cash register at the end of your shift you

have to close it out to make sure it you know what's in there is what it should be in there. Also I want again, there it is again, separate custody from the

record-keeping. Those who keep up with accounting is not the ones that's

typically on the cash register. You want to keep those two things separate. Another

thing that we use for internal controls for cash receipts, the cash coming in, is

what we call cash shorten over. This is a specific account now. This is used to

account for any errors discovered between the cash in the cash register and the cash receipt amount If you ever worked a cash register you know you had that time where at the end of the shift you count out your drawer and you a dollar short or two dollars short or maybe a dollar over or a quarter over or who knows

Remember, what we have on our receipt is what we sold. What we have in our drawer is what we

actually have. So when we're doing the journal entry for that, we want to make sure that they

match. Our debits have to equal our credits. And sometimes if we're over or we're short

we have to use an account to force that match with the debits and credits and that's what we're using

with cash short and over. Let's look at an example of this real quick to see how this works. So after

removing the starting amount, assume golf company cash register was to have a balance of $600. We

sold $600 worth of stuff. That's our revenue but it only contained $5.95 at the end of the day

that's our cash so we're short five dollars okay how would we journalize

this well first and foremost we have cash it goes up so we're gonna start

with that debit cash and we're gonna debit the cash for the amount that we actually have which is 595 and then we have the revenue side of it what we actually did the work for rendered the product or the service and we going to call that revenue And that going to be the because that what we earned But we have to make our debits and our credits equal

So we're missing $5. And what are we going to call that $5? Well, we're going to call it cash

shortened over. You don't even have to choose which one it is because where you put it in the

debit or the credit will tell you if it's short or over. Cash shortened over is treated like an

expense or a revenue. When it's short, it's treated like an expense. It's going to be closed

out just like an expense. When it's on the credit side or when it's over, it's going to be treated

like a revenue. So again, it's going to be closed out just like any of the other ones

And so where it goes will tell you if it's short or over. I want to give you another example just

to kind of show you the other side of it real quick. What if they were to have 600, but they

actually had 605. So in this type of equation, this example, we're actually $5 over. So again

we'll have cash of the 600 because that's our 605 excuse me because that's what we actually had

We have the revenue of 600 because that what we earned and then this time because we over we going to put the five dollars on the credit side that would mean my debits and my credit equal And I going to call it cash short and over for the again That how you handle cash short and over account

It's just we'll use it to force it. But it's only for minimal accounts or minimal amounts

We're not talking about hundreds of dollars here. All right. Lastly, we're going to talk about cash receipts by mail

Sometimes cash is paid to us through the mail. And we need to come up with some internal controls to keep that amount safe

And when I say cash, I'm not literally talking currency, sometimes checks

Ideally, you want to require two people to open the mail and prepare the list of the cash received

So two people open it. Why two? Because it's a lot harder for two people to clue together on everything than one person to keep the same story across the board

So it's just an extra layer. And when you're opening this cash, one copy is sent to the cashier to deposit in the bank

They're the ones that's in custody of the cash. and then another copy is sent to the record keeper so they can put it into the books

So that is the internal controls just specifically for cash received by the mail

So I hope that made sense to you. Appreciate it