Versa Tools Inc. is a small tool and die manufacturing shop located in southwestern Ontario. The company’s main shareholder, Arthur Eshelman, is becoming increasingly concerned about the safety and security of the company as- sets and, in particular, its cash. In the past, Arthur handled all the cash transactions. However, with increasing production levels and plans to expand into a plastics division, he has been too busy to continue with this hands-on approach.
Currently, there is only one person in the accounting department, a clerk who is responsible for recording all the cash receipts and disbursements and for depositing all the cash. Because she is so busy, cash is usually deposited in the bank only once a week. Until it is deposited, all cash collected is locked in a desk drawer in the main office. The accounting clerk has no formal accounting education. In fact, she is a graduate of a local art school and is working at Versa only to earn enough money to move to Toronto and begin a career as a graphic artist. She often notes the cash receipts on slips of paper until she has time to enter them into the computer system several days later.
Finally, Arthur has not been preparing bank reconciliations. When asked about the bank reconciliations, he replied, “I’m so busy running the business that I don’t have time to check every item on the bank statement each month. Besides, with the high fees that it charges us each month, shouldn’t I be able to rely on the bank to keep an accurate record of the balance in our account?”
Required:
Prepare a memo to Arthur outlining the basic cash controls that should be put into place at Versa Tools Inc. to ensure the proper management and protection of its cash.