in financial accounting what is internal control

Internal control in financial accounting refers to the

policies, procedures, and processes implemented by a
company to ensure the accuracy, reliability, and
integrity of its financial reporting. The purpose of
internal control is to help a company achieve its
objectives by preventing and detecting errors and fraud
in financial reporting.

Internal control covers a wide range of activities that

include:

1. Separation of duties: Assigning different responsibilities

to different employees to ensure that no one person has
complete control over a process or transaction.
2. Authorization and approval: Requiring approvals and
authorizations for financial transactions to ensure they
are legitimate and comply with company policies.
3. Segregation of assets: Separating assets and liabilities
to ensure they are properly accounted for and protected
from theft or loss.
4. Record keeping and documentation: Ensuring that
financial transactions are properly recorded, classified,
and documented to support the accuracy of financial
statements.
5. Physical controls: Implementing controls such as locks,
cameras, and security personnel to protect assets from
theft or damage.

Overall, internal control helps a company to achieve its

goals by ensuring that financial reporting is accurate,
complete, and reliable. Effective internal control also
helps to prevent and detect fraud, error, and waste,
which can harm a company's financial performance and
reputation.

in financial acccounting define control of cash how

control of cash is done
Control of cash refers to the procedures and processes a
company uses to ensure the proper handling, security,
and accounting of its cash. Effective control of cash is
 important to prevent loss, theft, or misappropriation of
cash and to ensure the accuracy and reliability of
financial statements.

To control cash, a company may implement the

following procedures:

1. Separation of duties: Different employees should be

assigned responsibilities for handling cash to ensure
that no one person has complete control over cash
handling.
2. Segregation of functions: The functions of cash receipt,
recording, and custody should be segregated to avoid
errors or fraud.
3. Use of prenumbered documents: All cash receipts and
disbursements should be recorded on prenumbered
documents to provide a clear audit trail and to prevent
unauthorized transactions.
4. Daily reconciliation of cash balances: The company
should reconcile its cash balances on a daily basis to
ensure that all cash transactions have been properly
recorded and to detect any discrepancies.
5. Physical controls: Physical controls such as safes, locks,
and surveillance cameras should be used to secure cash
and protect it from theft or loss.
6. Authorized access: Only authorized personnel should
have access to cash and only for authorized purposes.
7. Periodic audits: Regular internal and external audits
should be conducted to ensure compliance with cash
control policies and to identify any weaknesses or
deficiencies in the system.

Overall, control of cash is a critical component of a

company's internal control system, and it requires a
combination of procedures and controls to ensure the
proper handling and accounting of cash.

in financial acccounting define control of cash how

control of cash is done
 Control of cash refers to the procedures and processes a
company uses to ensure the proper handling, security,
and accounting of its cash. Effective control of cash is
important to prevent loss, theft, or misappropriation of
cash and to ensure the accuracy and reliability of
financial statements.

To control cash, a company may implement the

following procedures:

1. Separation of duties: Different employees should be

assigned responsibilities for handling cash to ensure
that no one person has complete control over cash
handling.
2. Segregation of functions: The functions of cash receipt,
recording, and custody should be segregated to avoid
errors or fraud.
3. Use of prenumbered documents: All cash receipts and
disbursements should be recorded on prenumbered
documents to provide a clear audit trail and to prevent
unauthorized transactions.
4. Daily reconciliation of cash balances: The company
should reconcile its cash balances on a daily basis to
ensure that all cash transactions have been properly
recorded and to detect any discrepancies.
5. Physical controls: Physical controls such as safes, locks,
and surveillance cameras should be used to secure cash
and protect it from theft or loss.
6. Authorized access: Only authorized personnel should
have access to cash and only for authorized purposes.
7. Periodic audits: Regular internal and external audits
should be conducted to ensure compliance with cash
control policies and to identify any weaknesses or
deficiencies in the system.

Overall, control of cash is a critical component of a

company's internal control system, and it requires a
combination of procedures and controls to ensure the
proper handling and accounting of cash.
 components of internal cash control
Internal cash control is a critical component of a
company's overall internal control system. Effective
internal cash control is essential for ensuring the
accuracy and reliability of financial reporting and
preventing fraud, errors, and other financial
irregularities. The components of internal cash control
typically include:

1. Separation of duties: This involves separating the

responsibilities of cash receipt, recording, and custody
to different employees to prevent any one person from
having complete control over cash handling. For
example, the person responsible for recording cash
receipts should not also be responsible for handling
cash.
2. Authorization and approval procedures: This involves
establishing procedures for authorizing and approving
all cash transactions, such as cash receipts and
disbursements, to ensure that they are legitimate and
authorized.
3. Physical control of cash: This involves implementing
physical controls, such as secure storage facilities,
locks, safes, and surveillance cameras, to safeguard
cash and prevent theft or loss.
4. Reconciliation of cash balances: This involves regularly
reconciling cash balances, such as comparing cash on
hand to the cash balance in the accounting system, to
detect any discrepancies and prevent errors.
5. Monitoring and review: This involves ongoing
monitoring of cash transactions and reviewing the
effectiveness of internal cash control procedures to
identify any weaknesses or deficiencies in the system
and make improvements.
6. Audit trail: This involves establishing an audit trail for
all cash transactions, such as using prenumbered
documents, to provide a clear record of all cash
transactions and to help identify any discrepancies or
unauthorized transactions.
 Overall, the components of internal cash control work
together to establish a system of policies, procedures,
and processes that aim to ensure the proper handling,
accounting, and safeguarding of cash resources.
Effective internal cash control is essential for
maintaining the integrity and accuracy of financial
reporting and preventing fraud or other financial
irregularities.

highlight internal controls for E-commerce

Effective internal controls are critical for the success
and security of e-commerce businesses. The unique
aspects of e-commerce, such as online transactions and
data security, require specific internal controls to
ensure that transactions are processed accurately and
securely, and to prevent fraud, errors, and other
financial irregularities. The internal controls for e-
commerce typically include:

1. Access controls: This involves establishing appropriate

access controls for e-commerce systems, such as
password protection, multi-factor authentication, and
role-based access control. This ensures that only
authorized personnel have access to e-commerce
systems and sensitive data.
2. Data security: This involves implementing data security
controls, such as encryption, firewalls, intrusion
detection, and antivirus software, to protect sensitive
customer information and prevent data breaches.
3. Fraud prevention: This involves establishing fraud
prevention controls, such as real-time transaction
monitoring, anomaly detection, and order verification
procedures, to prevent fraudulent transactions and
unauthorized access to customer data.
4. Payment processing controls: This involves
implementing controls for payment processing, such as
secure payment gateways, PCI compliance, and
reconciliation of payments, to ensure that all payments
are processed accurately and securely.
5. Inventory management controls: This involves
implementing controls for inventory management, such
 as real-time inventory tracking, order fulfillment
processes, and periodic inventory reconciliation, to
prevent errors and ensure accurate inventory reporting.
6. Internal audit and review: This involves conducting
periodic internal audits and reviews of e-commerce
systems and processes to identify any weaknesses or
deficiencies in the internal control system and make
improvements.

Overall, effective internal controls for e-commerce

require a comprehensive approach that addresses the
unique aspects of online transactions and data security.
E-commerce businesses must establish appropriate
access controls, data security, fraud prevention,
payment processing, inventory management, and
internal audit and review procedures to ensure the
accuracy and security of online transactions and to
maintain the trust of customers.

How effective is the bank account as control device

How effective is the bank account as control device
Bank accounts are an effective control device for
businesses because they provide a number of benefits
in terms of internal control. Some of the key benefits of
using bank accounts as a control device include:

1. Cash management: Bank accounts allow businesses to

manage their cash more effectively by consolidating
cash into a single account and tracking incoming and
outgoing cash flows. This makes it easier for businesses
to monitor their cash balances and ensure that they
have sufficient funds to cover their expenses.
2. Fraud prevention: Bank accounts can help prevent fraud
by providing a paper trail for all transactions and
ensuring that transactions are authorized before funds
are released. Additionally, many banks offer fraud
prevention services that can help detect and prevent
fraudulent activity.
3. Reconciliation: Bank accounts make it easier to
reconcile cash balances by providing a statement of all
 transactions and balances. This can help identify errors
or discrepancies in the accounting records and ensure
that the financial statements accurately reflect the
company's financial position.
4. Security: Bank accounts provide a secure way to store
cash, reducing the risk of theft or loss. Additionally,
electronic payments and online banking services can
reduce the need for physical cash and checks, further
improving security.
5. Audit trail: Bank accounts provide an audit trail for all
transactions, which can be useful in the event of an
audit or investigation.

However, it's important to note that bank accounts

alone are not enough to provide effective internal
control. Other internal control measures, such as
separation of duties, authorization and approval
procedures, and regular monitoring and review, should
also be implemented to ensure effective control of cash
and other assets. Additionally, it's important to select a
reputable and trustworthy bank and to regularly review
and monitor bank account activity to ensure that it
aligns with the business's financial goals and objectives.

define and explain the process of bank reconciliation

Bank reconciliation is the process of comparing the
balance in a company's accounting records to the
balance on the bank statement to identify and explain
any differences. The goal of bank reconciliation is to
ensure that the cash balance in the accounting records
is accurate and complete.

The process of bank reconciliation typically involves the

following steps:

1. Obtain the bank statement: The first step in bank

reconciliation is to obtain a copy of the bank statement
for the period being reconciled. This statement will
show all transactions that have been processed by the
bank during that period, including deposits,
withdrawals, and fees.
2. Compare transactions: The next step is to compare the
transactions on the bank statement to the transactions
recorded in the company's accounting records. This
involves matching each transaction on the bank
statement to the corresponding transaction in the
company's records.
3. Identify differences: Any differences between the bank
statement and the accounting records are then
identified. These differences may be due to timing
differences, errors, or other discrepancies.
4. Adjust accounting records: If the differences are due to
errors in the accounting records, the records should be
adjusted to reflect the correct balance. For example, if a
deposit was recorded in the accounting records but was
not included on the bank statement, the accounting
records should be adjusted to include the deposit.
5. Prepare reconciliation statement: Once all differences
have been identified and resolved, a bank reconciliation
statement is prepared to summarize the reconciliation
process. The reconciliation statement will typically
include the balance per bank, the balance per company
records, and any adjustments made to the records.
6. Investigate outstanding items: If any differences cannot
be resolved, they are considered outstanding items and
may require further investigation. Outstanding items
may include checks that have not cleared the bank,
deposits that have not been credited, or errors that
require additional review.

By performing bank reconciliation on a regular basis,

businesses can ensure that their accounting records
accurately reflect their cash position, identify any errors
or discrepancies, and prevent fraud or other financial
irregularities.

explain bank reconciliation method

Bank reconciliation is a process of comparing the
company's accounting records of cash transactions with
the bank statement, in order to identify and resolve any
differences or discrepancies. The purpose of bank
reconciliation is to ensure that the company's
 accounting records of cash transactions match the
bank's records of the same transactions.

The method for bank reconciliation typically involves the

following steps:

1. Obtain a copy of the bank statement: The first step in

bank reconciliation is to obtain a copy of the bank
statement. This statement shows all transactions
processed by the bank during the period being
reconciled, including deposits, withdrawals, and fees.
2. Update the company's accounting records: The next
step is to update the company's accounting records to
reflect any transactions that have not been recorded in
the accounting system. These transactions may include
checks written by the company that have not yet
cleared, deposits made by the company that have not
yet been credited, and bank fees or charges.
3. Compare the bank statement to the company's
accounting records: The bank statement is then
compared to the company's accounting records to
ensure that all transactions have been properly
recorded. Any discrepancies are identified and
investigated.
4. Record any necessary adjustments: If discrepancies are
found, any necessary adjustments are made to the
company's accounting records. For example, if a check
was recorded in the company's records but did not clear
the bank, the check may need to be voided in the
accounting system.
5. Prepare a reconciliation statement: Finally, a
reconciliation statement is prepared to summarize the
bank reconciliation process. This statement shows the
beginning and ending balances for the bank account and
the company's accounting records, and any adjustments
made during the reconciliation process.

The bank reconciliation method is an important process

for ensuring the accuracy of a company's accounting
records and identifying any discrepancies or errors. By
performing bank reconciliation on a regular basis,
businesses can prevent fraud and other financial
 irregularities, ensure the accuracy of their financial
statements, and maintain good relationships with their
banks.
write a short note on internal control over cash
payments
Internal control over cash payments is a process of
managing the flow of cash out of a business, in order to
prevent fraud, errors, and other financial irregularities.
The objective of internal control over cash payments is
to ensure that all cash disbursements are properly
authorized, supported by appropriate documentation,
and accurately recorded in the company's accounting
records.

Some of the key components of internal control over

cash payments include:

1. Segregation of duties: To prevent fraud or other

financial irregularities, it's important to ensure that the
process of cash payments is properly segregated from
other accounting functions, such as cash receipts,
bookkeeping, and financial reporting.
2. Approval processes: All cash disbursements should be
authorized by an appropriate level of management, such
as a supervisor or manager, and supported by
appropriate documentation, such as purchase orders,
invoices, or receipts.
3. Payment controls: Payment controls should be in place
to ensure that cash payments are made in accordance
with company policies and procedures, such as verifying
the accuracy of invoices and checks, reviewing and
approving payment requests, and ensuring that
payments are made only to authorized vendors.
4. Recordkeeping: Accurate and complete recordkeeping is
essential for internal control over cash payments. This
includes maintaining detailed records of all cash
disbursements, as well as reconciling these records with
bank statements and other financial records.

By implementing effective internal control over cash

payments, businesses can minimize the risk of fraud and
errors, ensure the accuracy of their financial records,
and maintain the trust of their customers, suppliers,
and other stakeholders.

give brief introduction of account receivables in

financial accounting
Accounts receivable is a term used in financial
accounting to refer to the money owed to a company by
its customers or clients for goods or services that have
been sold or provided on credit. In other words,
accounts receivable represents the company's right to
receive payment from its customers for the products or
services they have purchased, but have not yet paid for.

Accounts receivable is considered an asset on a

company's balance sheet, as it represents the
company's expectation of receiving payment in the
future. To record accounts receivable, a company
creates invoices for each sale or service provided, which
specify the amount due, the payment terms, and the
due date. Once the invoice has been sent to the
customer, it becomes a receivable until the customer
pays.

Managing accounts receivable is an important part of

financial accounting, as it affects a company's cash flow,
profitability, and overall financial health. Companies
need to monitor their accounts receivable to ensure that
customers are paying on time and to identify any
delinquent accounts. To manage accounts receivable
effectively, companies may use various strategies such
as offering discounts for early payment, establishing
credit policies, and utilizing collection efforts for
overdue accounts.

explain account receivable accounting with example

Accounts receivable accounting is the process of
managing and recording the money owed to a company
by its customers for goods or services sold on credit.
The accounting for accounts receivable involves tracking
the balances due from customers, managing the credit
terms and payment schedules, and recognizing revenue
when the products or services are delivered.

Here is an example of accounts receivable accounting:

Suppose a company sells $10,000 worth of goods to a

customer on credit with payment terms of 30 days. The
company would record the sale as follows:

Debit: Accounts Receivable $10,000 (to record the

amount owed by the customer) Credit: Sales Revenue
$10,000 (to recognize the revenue earned from the sale)

At the end of the 30-day payment period, the customer

pays the invoice in full. The company would record the
payment as follows:

Debit: Cash $10,000 (to record the receipt of cash)

Credit: Accounts Receivable $10,000 (to reduce the
amount owed by the customer)

If the customer does not pay the invoice within 30 days,

the company may need to take collection actions to
recover the amount owed. The company may send
reminder notices, make phone calls, or even take legal
action to collect the debt.

To manage accounts receivable, companies may also

establish credit policies, such as requiring credit checks,
setting credit limits, and establishing payment terms.
Companies may also use aging schedules to monitor the
status of their accounts receivable and identify
delinquent accounts.

In summary, accounts receivable accounting is an

important part of managing a company's financial
health. By effectively managing their accounts
receivable, companies can improve their cash flow,
profitability, and customer relationships.
define with example allowance method in account
receivables
The allowance method is a method used in accounting to
estimate and record the amount of uncollectible
accounts receivable. It involves creating an allowance
account on the balance sheet, which is used to offset
the accounts receivable balance, resulting in a net
accounts receivable balance.

Here is an example of the allowance method in accounts

receivable:

Suppose a company has $100,000 in accounts

receivable, but the company estimates that 2% of these
accounts will be uncollectible. The company would
create an allowance account for $2,000 (2% of
$100,000) on the balance sheet.

At the end of the accounting period, the company

reviews its accounts receivable and identifies a specific
customer with an outstanding balance of $5,000 that is
deemed uncollectible. The company would record the
following journal entry:

Debit: Bad Debt Expense $5,000 (to recognize the

expense of the uncollectible account)

Credit: Allowance for Doubtful Accounts $5,000 (to

reduce the allowance account)

This entry reduces the balance in the allowance account

by the amount of the uncollectible account, resulting in
a net accounts receivable balance of $98,000 ($100,000
- $2,000 - $5,000).

The allowance method is a way for companies to

account for the risk of uncollectible accounts and to
ensure that their financial statements accurately reflect
the value of their accounts receivable. By estimating
and recording a reserve for bad debts, companies can
better manage their cash flow, maintain their
creditworthiness, and reduce the risk of financial losses.
the direct write off method in accountreceivables with
example
The direct write-off method is a method used in
accounting to account for uncollectible accounts
receivable. Under this method, a company waits until a
specific account is deemed uncollectible before
recording the bad debt expense. This method is simple
and straightforward, but it does not match expenses to
revenues and can distort financial statements.

Here is an example of the direct write-off method in

accounts receivable:

Suppose a company has a customer with a balance of

$5,000 that is deemed uncollectible. The company would
record the following journal entry:

Debit: Bad Debt Expense $5,000 (to recognize the

expense of the uncollectible account) Credit: Accounts
Receivable $5,000 (to reduce the accounts receivable
balance)

This entry reduces the accounts receivable balance by

the amount of the uncollectible account, resulting in a
net accounts receivable balance that does not reflect
the potential risk of future uncollectible accounts.

The direct write-off method is not generally used in

practice because it violates the matching principle in
accounting, which requires that expenses be recognized
in the same period as the related revenues. The
allowance method is preferred because it estimates the
amount of uncollectible accounts and records the bad
debt expense in the same period as the related
revenues.
what is credt card and debit card .how sales are done
with the help of these cards respectively
A credit card and a debit card are two different types of
payment cards that allow consumers to make purchases
or transactions without using cash.
A credit card is a payment card that allows the
cardholder to borrow funds from the issuing bank or
financial institution up to a certain credit limit. The
cardholder must pay back the borrowed amount plus
any interest charged by the bank or financial institution.
When a credit card is used to make a purchase, the
cardholder is essentially borrowing money from the
issuer of the credit card to make the purchase.

On the other hand, a debit card is a payment card that

allows the cardholder to access funds from their bank
account to make purchases or transactions. The
cardholder can only spend the available balance in their
bank account, and transactions made with a debit card
are immediately deducted from the cardholder's
account.

When a sale is made with a credit card, the seller or

merchant receives the payment from the credit card
issuer or processor, and the amount of the sale is added
to the cardholder's credit card balance. The cardholder
will then need to pay off the balance on the credit card,
either in full or with interest charges added over time.

When a sale is made with a debit card, the seller or

merchant receives the payment directly from the
cardholder's bank account. The amount of the sale is
immediately deducted from the available balance in the
cardholder's account.

In both cases, the use of credit cards and debit cards

allows for fast, convenient, and secure payment
transactions, and they are widely used in a variety of
settings such as online shopping, in-person retail, and
bill payments.

what do you mean by notes receivables

Notes receivable is a type of financial instrument that
represents a written promise by a borrower to pay a
specific sum of money to a lender at a future date or on
demand. It is a type of asset that a company can hold on
its balance sheet, and it represents an amount owed to
the company by a borrower.

A note receivable is similar to a loan, where a lender

provides funds to a borrower in exchange for the
borrower's promise to repay the amount borrowed plus
interest by a specified date. The borrower is typically
required to make regular payments of both principal
and interest until the note is paid in full. Notes
receivable may be secured or unsecured, depending on
whether the borrower has provided collateral to the
lender.

For example, a company may provide a loan to a

customer in the form of a note receivable, which
specifies the amount borrowed, the interest rate, and
the repayment terms. The customer may be required to
make regular payments until the note is paid in full, and
the company would record the payments as a reduction
in the notes receivable balance on its balance sheet.

Notes receivable are an important component of a

company's assets and are commonly used to finance
business operations or provide financing to customers.
The valuation and management of notes receivable
require careful consideration and analysis to ensure
that the company is adequately compensated for the
risk associated with lending money.

How accounting information is used for decision

making in account receivables
How accounting information is used for decision making
in account receivables
Accounting information related to accounts receivable
can be used to make important decisions related to a
company's cash flow, credit management, and customer
relationships. The following are some ways in which
accounting information related to accounts receivable
can be used for decision-making:
1. Cash flow management: Accounting information related
to accounts receivable can be used to determine the
amount and timing of expected cash inflows. This
information can be used to make important decisions
related to cash flow management, such as determining
when to invest in new projects, pay suppliers, or pay
dividends to shareholders.
2. Credit management: Accounting information related to
accounts receivable can be used to evaluate the
creditworthiness of customers and to assess the risk
associated with extending credit. This information can
be used to make important decisions related to credit
management, such as determining credit limits, setting
payment terms, and deciding when to take action
against delinquent accounts.
3. Customer relationship management: Accounting
information related to accounts receivable can be used
to track customer payment history and to identify
opportunities to improve customer relationships. This
information can be used to make important decisions
related to customer relationship management, such as
identifying loyal customers for special promotions or
offering payment plans to customers experiencing
financial difficulties.
4. Performance evaluation: Accounting information related
to accounts receivable can be used to evaluate the
performance of the accounts receivable function and to
identify areas for improvement. This information can be
used to make important decisions related to
performance evaluation, such as setting performance
targets, identifying training needs, and allocating
resources.

In summary, accounting information related to accounts

receivable can be used for various decision-making
purposes, including cash flow management, credit
management, customer relationship management, and
performance evaluation. By using this information
effectively, companies can improve their financial
position, reduce risk, and enhance customer
relationships.