Every business has internal controls systems in place throughout the entire business operation. However, in the accounting department, there are specific internal controls established to protect the business from errors, theft and fraud. This form of checks and balances primarily monitors the work of employees.
Examples of accounting internal controls include cash registers which record all cash sales. Employee time cards that supervises the honesty of employees’ work hours. Pre-documents like checks and purchase orders give added protection. Accounts are monitored by reconciling them with independent outside records.
Various accounting transactions need internal controls to protect the integrity of the transactions. Sales and collections, purchases and payments, payroll and payments all have internal controls in place.
- Sales and collections: The sales process is lengthy and each activity is performed by a different employee as part of the internal controls. The only exception is the accounts receivable clerk records both the amount invoiced and the amount received.
- Purchases and payments: Amongst the various purchase activities required, different employees perform each as a part of the internal controls. The only exception is the payables clerk records both the purchase and the payment in the supplier’s account.
- Payroll and payments: The hiring and dismissal of employees as well as the setting of wage rates is conducted separately from payroll preparations, distribution and accounting. Typically, the first set of operations is carried out by the payroll department in company of average size.