Control procedures or practices of finance

Preparing bank reconciliation of all bank accounts on receipt of the bank statement. Preparing bank reconciliation of all bank accounts on receipt of the bank statement is a form of detective control. Bank reconciliation is done to ascertain that the balance shown in the cashbook at the end of a given accounting period is correct by comparing it with the bank statement or passbook supplied by the bank. It is important to do bank reconciliation in the company.
It is because bank reconciliation can be used to identify payments and sometimes the receipts that are on the bank statement but have not been entered in the cashbook. Let’s compare between Company A that does the bank reconciliation at every period and Company B that doesn’t do so. If the cheques drawn that have been sent to payee and entered into cash book but which have not been presented to our bank for payment and thus do not appear on the bank statement at the end of the accounting period.
In this case, Company A will be able to detect this problem when preparing bank reconciliation while Company B will not know what is going wrong on the accounts although the balance sheet has shown the unbalance situation. Other than that, if the money in the company was stolen, the company will not notice it if there is no any reconciliation is taken place. Bank reconciliation will help the company to detect any shortage of money in the company. (ii) Maintaining comprehensive manuals that show detailed steps of all the accounting procedures.

Maintaining the comprehensive manual that shows the detailed steps of accounting procedures is a type of preventive control. Accounting procedures manual views the information from the CFO or Controller’s perspective of producing internal controls for the various “cycles” that occur within a business. It includes cycles for revenue, purchasing, inventory ; assets, cash, general ; administrative (including taxes ; insurance). Besides, accounting procedures manual also views the information from the perspective of producing internal controls for the various cycles that occur within the business.
If there is no accounting procedures manual in the company, the accounting may not be prepared in order following with the proper and correct procedures. For example, the accounting procedures manual shows that the Treasurer shall submit the accounts to the Budget Committee at the latest sixty days after they have been received from the external auditors. If the treasurer of the company are not following what is stated inside the accounting procedure, he may ignore accidentally of this important condition and it may cause problems to the company.
(iii) Requiring a clerk who receives ordered merchandise to prepare and sign a form that separately lists all the items and uantities received. Requiring a clerk who receives ordered merchandise to prepare and sign a form that separately lists all the items and quantities received is a form of preventive control. The form will list out all the items ordered and the quantities ordered. It will give a clear view to the company of what transactions are going on. If this step is not taken, a lot of problems may occur. The company will feel blurred of the items and quantities ordered.
The company may receive the wrong stocks and wrong amount of stocks. For example, a clothing-making factory has ordered 3000 pieces of denim clothes to produce certain amount of clothes to its customer. However, there has no any lists to list out type of clothes ordered and the quantities ordered too. Accidentally, the supplier has sent nylon clothes wrongly to the factory. The factory just received the stocks ordered without invoices (the form to list out the items purchased and quantities ordered) to checking on the stock. When the factory notices the error, it is too late to order another type of clothes to complete the production planned.
Finally, the factory may need to compensate an amount of money to its customer. (iv) Listing all the cash remittances received daily by mail and comparing the total to the deposit slip. Listing all the cash remittances received daily by mail and comparing the total to the deposit slip is a form of preventive control. That’s mean, the company financial department will list down the amount of cash received (that is sent by mail) and the amount of cash will be compared to the deposit slip to check whether the correct amount of cash is received.
Listing down the cash received by mail is a good step to confirm that certain customers have paid the money by mail and comparing the total to the deposit slip is a good step to make sure that the correct amount of money is posted by the customers. If this step is not taken place in the company, a lot of problems may occur. For example, Mr. Lee who has posted the cash money to pay the balance on the massage chair ordered from Osim Company last month, receives a letter that states that if Mr.
Lee is not going to pay the balance on the massage chair ordered, the order will be void without refunding the deposit paid. All these problems happen is because of the company does not make any record in the money received by mail and the carelessness of financial department. As the consequence, Mr. Lee will lose any confidence on Osim Company and with ‘word of mouth’ theory; reputation of Osim Company will be affected. Other than that, if the company doesn’t compare the total cash received by mail to the deposit slip, the company may get loss of profit.
For example, Mr. Lee as the situation above has posted cash money that less than the amount of money required, to Osim Company to pay the balance of the massage chair ordered. If the company does not compare the total to the deposit slip and assume that Mr. Lee has settled the payment of the massage chair ordered, the company will suffer loss without knowledge. (v) Depositing all cash received daily intact in the bank. Depositing all cash received daily intact in the bank is a form of preventive control.
A company will receive a lot of cash money everyday because of the transactions done everyday. Therefore, it will be safety to bank in the cash money to avoid any shortage and theft of money. For an example, if RM50, 000 that is received from customer to make stock order may be stolen by the staff of company. It is because everyone has greedy mind and RM50, 000 may cause the staff having the idea to steal the money. However, if the money is kept into bank after every transaction, this problem may not be happened.
Bibliography
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