Cash control and security - Physical controls and documentat...

Learning Outcomes

After studying this article, you will be able to explain why cash control is essential for business integrity, identify key physical safeguards over cash, describe the types and purpose of supporting documentation, and illustrate effective procedures for handling cash and petty cash. You will also be able to apply and explain exam-standard entries for common cash control scenarios.

ACCA Maintaining Financial Records (FA2) Syllabus

For ACCA Maintaining Financial Records (FA2), you are required to understand the importance of cash control, the methods used to safeguard cash, and the supporting documentation required for effective record-keeping. Your exam may assess:

• The need for robust physical controls over cash and petty cash
• The types and roles of documentation supporting cash receipts and payments
• Petty cash systems, especially the imprest method
• Recording and authorising cash and petty cash transactions
• Reconciling cash, petty cash, and documentation

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which control best ensures all cash received is immediately recorded and secured?
   1. Relying on manager integrity
   2. Locking cash in a safe and issuing sequential receipts
   3. Holding all cash in petty cash tin
   4. Only recording large cash receipts
2. Which document confirms cash has been received by a business from a customer?
   1. Delivery note
   2. Purchase requisition
   3. Receipt
   4. Purchase order

3. What is the main purpose of the petty cash imprest system?

4. Give two examples of physical controls over cash that reduce theft risk.

Introduction

Every business faces the risk of cash loss, theft, or error. Effective cash control provides assurance over accuracy and security in cash handling. Strong physical controls and proper documentation reduce the risk of fraud, enable accurate accounting, and are fundamental to the ACCA FA2 syllabus.

This article sets out the most common controls and documents used to protect cash—including both payments and receipts. You will learn how to identify weaknesses and reflect proper procedures in the accounting records.

Key Term: cash control
Policies, procedures, and physical measures designed to ensure cash is only handled by authorised persons, properly recorded, and secured against loss or theft.

PHYSICAL CONTROLS OVER CASH

Physical controls ensure that cash—be it in notes, coins, or cheques—remains secure from the moment it enters the business until it is deposited at the bank or used in operations.

Common Physical Safeguards

• Locking all cash and cheques in a secure safe or locked drawer when not in use
• Restricting access to authorised employees only
• Installing surveillance cameras near cash handling points
• Ensuring regular banking of cash receipts (ideally daily)
• Dividing responsibilities: one staff collects, another records the cash (segregation of duties)
• Requiring supervisory approval for all cash withdrawals or payments

Key Term: segregation of duties
Dividing tasks between individuals so that no single employee controls every stage of a cash transaction.

Petty Cash Controls

Petty cash is used to pay small, miscellaneous expenses. Robust controls over petty cash minimise misuse and errors:

• Use a locked petty cash box accessible to a named custodian
• Limit the float (maximum amount held)
• Require an authorised petty cash voucher and supporting receipts for every payment
• Carry out regular counts to agree the actual cash to records

Key Term: petty cash
A small sum of cash held in the workplace for minor expenses, managed under an agreed system of controls.

Key Term: imprest system
A method where petty cash is topped up to a fixed level at regular intervals, so all outgoings must be supported by vouchers adding up to the difference between the starting amount and what remains.

DOCUMENTATION SUPPORTING CASH TRANSACTIONS

Proper documentation provides a clear audit trail for every cash movement and enhances control.

Key Documents

• Receipts: Issued to confirm cash received from customers. Should be sequentially numbered and completed immediately.
• Petty cash vouchers: Prepared when petty cash is withdrawn. Must detail the payee, date, amount, reason, and be authorised.
• Payment authorisation forms: Required for larger cash outflows, signed by an authorised person.
• Cash count sheets: Used during cash verifications, listing denominations and counted totals.

Key Term: receipt
A document confirming a specified sum of cash was received from a customer or other party.

Key Term: petty cash voucher
A document recording the details and reason for a specific petty cash payment, used to support accounting entries and authorisation.

Matching Documentation to Transactions

For sound internal control and clear records, link each cash transaction to its supporting documentation:

• Every cash receipt—file a copy of the receipt given
• Every cash payment—retain petty cash voucher or bank payment documentation
• All documents—securely stored and referenced to ledger entries

Worked Example 1.1

A business receives $200 in cash from a customer. The cashier issues a pre-numbered receipt, locks the cash in a safe, and records the amount in the cash receipts log. At day's end, the cash total matches the log, and the cash is banked.

Question: Which physical and documentation controls are shown here?

Answer:
Physical controls include locking the cash in a safe and prompt banking. Documentation controls comprise issuing a pre-numbered receipt and keeping a detailed cash receipts log, allowing verification and future reference.

Worked Example 1.2

During a petty cash count, the imprest float is $100. The custodian has $20 in receipts and $80 remaining in cash. However, only $15 of receipts are properly authorised with vouchers.

Question: What control weakness is indicated, and what action should be taken?

Answer:
The $5 unsupported payment signals a breakdown in petty cash documentation (lack of proper voucher). The custodian should explain the discrepancy. Corrective action includes enforcing voucher use and retraining staff on procedures.

Exam Warning

In the exam, you may be asked to identify missing documents or weaknesses in cash controls based on a short scenario. Always check if receipts, vouchers, or authorisation signatures are present.

RECOMMENDED CONTROL PROCEDURES

• Issue receipts for all incoming cash immediately; never delay recording
• Lock cash and cheque holdings securely when not in use
• Limit petty cash float and top up only against approved, supported claims
• Segregate duties: One person collects, another records, a third reconciles
• Perform independent, regular cash counts and reconciliations—document results
• File all supporting documentation for audit and verify correspondence with ledger entries

Revision Tip

Cross-check every cash transaction with supporting documentation during revision to quickly spot control gaps in practice questions.

Summary

Effective cash control relies on both strong physical safeguards and detailed, reliable documentation. Secure storage, restricted access, separation of duties, and regular verification minimise theft and errors. Documenting all cash movements—with receipts, vouchers, and clear authorisations—ensures transparency and accountability, forming a solid basis for accurate accounting and confidence in financial statements.

Key Point Checklist

This article has covered the following key knowledge points:

• Identify physical controls that reduce the risk of cash loss or theft
• Understand the role of the petty cash imprest system and necessary custodian duties
• Recognise essential documents: receipts, petty cash vouchers, cash count sheets
• Apply matched documentation to both receipts and payments for strong internal control
• Explain the importance of segregation of duties in the cash handling process
• Recognise the impact of missing documents on cash security and audit trails

Key Terms and Concepts

• cash control
• segregation of duties
• petty cash
• imprest system
• receipt
• petty cash voucher