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BUS 251Ch 6

Cash and receivables, without the guesswork.

Ten short steps: internal control, what counts as cash, the bank reconciliation and its entries, expected credit losses with an aging schedule, write-offs and recoveries, and the collection ratios. Then practise with worked solutions.

Part 1 · Cash and control · Step 1 of 10

Five principles keep cash safe and the records honest

Scenario

At closing time, the day's cash is left in an unlocked drawer under the counter.

Physical controlsMissing
Safes, locks, passwords and cameras protect cash, inventory and records.
Assignment of responsibilities
Each task belongs to one named person, so a shortage can be traced to someone.
Separation of duties
Whoever handles an asset does not also record it or approve its use.
Independent verification
Someone else checks the work: surprise counts, bank reconciliations, audits.
Documentation
Prenumbered receipts, invoices and cheques leave a trail that can be checked.
Limitations
Human error, collusion and cost. No system stops everything.
Internal control is the set of policies management uses to protect the company's assets and keep its records reliable, and management is responsible for it. The book groups the controls under five principles: physical controls, assignment of responsibilities, separation of duties, independent verification and documentation.
Try it: Pick each scenario and name the missing principle before you look. The last three show what no control system can fully prevent.
Scenario
Physical controls is missing. Lock the cash in a safe overnight and deposit it the next morning.
Internal control = protect assets + keep records reliable
Cash is the asset most easily stolen, so it gets the tightest controls.
Five principles: physical controls, assignment of responsibilities, separation of duties, independent verification, documentation
Separation of duties is the one most often tested: custody, recording and approval belong to different people.
Limitations: human error, collusion, cost
A control is worth having only if its benefit is greater than its cost.
Practise

Practise like it is the midterm

Answer first, then check. Fresh numbers writes a new question of the same type every time: reconciliations, aging schedules, write-offs, recoveries and ratios.

Score
0 / 0
Internal controlQuestion 1 of 19
At a small bakery, one employee opens the mail, deposits the customers' cheques and records the payments in the accounts receivable records. Which internal control principle is missing?

Midterm coming up and journal entries still feel shaky?

Bring your practice problems. We work through them together until every type feels routine.

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