Internal Control and Cash pptx

Internal Control and Cash Chapter 8... The Bank Reconciliation What are two records of a business’s cash?. The Bank Reconciliation Items recorded by a company not on the bank statemen

Internal Control and

Cash

Chapter

8

Define internal control.

Objective 1

Internal Control

 What is internal control?

 It is the organizational plan and all the related measures that an entity adopts to…

– safeguard assets,

– encourage adherence to company policies,

– promote operational efficiency, and

Operational ControlsFinancial Reporting ControlsInternal Control

Tell how to achieve good

internal control.

Objective 2

Establishing an Effective System

of Internal Control

 Characteristics of an effective internal

control system include:

1 Competent, reliable, and ethical personnel

2 Assignment of responsibilities

3 Proper authorization

4 Separation of duties

Separation of operations from accounting

Separation of the custody of assets from accounting

Separation of the authorization of transactions

from the custody of related assets

Separation of Duties

Stolen credit card numbersComputer virus and Trojan horses

Impersonation of companies

Internal Controls for

e-Commerce

Internal Controls for

Internal Controls for

e-Commerce

The Internet Corporate Intranet Firewall

Network

Computers

The Bank Account as a

The Bank Reconciliation

 What are two records of a business’s cash?

ledger

amount of cash the business has in the bank

The Bank Reconciliation

 Items recorded by a company not on the bank statement:

– deposit in transit

– outstanding checks

The Bank Reconciliation

 Items on a bank statement and not recorded

The Paths That Two Checks

Take (Good Check)

akerwrites check

to payee

Payeedeposits check

in bank

Payee’s banksends check tomaker’s bank

Maker’s bank

pays the check

The Paths That Two Checks

Take (NFS Check)

Maker’s bank balance is not sufficient to pay the check.

Prepare a bank reconciliation and the related journal entries.

Objective 3

The Bank Reconciliation

Example

 At the beginning of July, Sahita, Inc

received the June’s bank statement

 It indicated the following:

 The bank balance was $63,275

 The bank had collected a note receivable from one of Sahita’s customers in the

The Bank Reconciliation

Example

 The bank paid the electric bill of $1,500

 There was a $200 check returned for NSF

 Interest earned on the account was $265

 Bank service charges were $12

The Bank Reconciliation

Balance per bank, June 30 $63,275

Add deposit in transit 11,250

$74,525

Less outstanding check 8,000

The Bank Reconciliation

Example

Balance per books, June 30 $66,647Add: Note receivable

$68,237Less: Payment of electric bill 1,500

The Bank Reconciliation

Example

The Bank Reconciliation

Record Reconciling Items

Record Reconciling Items

Record Reconciling Items

Apply internal controls

to cash receipts.

Objective 4

Cash Receipts

Over the Counter

 The terminal should be positioned so that

customers can see the amount the cashier

enters into the cash register

 The cash drawer should open only when the sales clerk enters an amount on the keypad

 The roll of tape locked inside the machine

Cash Receipts

Over the Counter

 Pricing merchandise at “uneven” amounts means that the clerk has to open the cash drawer

 This requires entering the amount of the sale on the keypad and so onto the register tape

Cash Receipts

Over the Counter

 At the end of the day, the cashier deposits the cash in the bank

 The tape goes to accounting

Cash Receipts by Mail

 All incoming mail should be opened by a mailroom employee.

 This person should compare the check

received with the remittance advice.

 Cash receipts should be given to the cashier.

 The mailroom employee forwards the

remittance advice to accounting.

Cash Receipts by Mail

 Many companies use a lock-box system.

 Customers send their checks directly to an address that is a bank account

 Company personnel do not handle the cash

Cash 24,980

Cash Short and Over 20

25,000

Daily cash sales

Cash Short and Over

 Assume that the cash register tapes indicate sales revenue of $25,000

 However, the cash received was $24,980

 What entry would record the day’s sales?

Apply internal controls

to cash payments.

Objective 5

Control Over

Approval of Payments

Purchase Request Purchase Order Invoice

Receiving Report

Disbursement Packet

Control Over

Approval of Payments

 The accounting department

– combines all of these documents,

– checks them for accuracy, and

– forwards this disbursement packet to designated officers for approval and payment

Controlling Petty Cash Payments

 On June 15, Sahita Inc manager decided

to establish a $250 petty cash fund

 What is the entry?

Controlling Petty Cash Payments

Controlling Petty Cash Payments

 Jose also spent $20 for delivery charges

and $60 for coffee and other miscellaneous expenses

 What is the journal entry to record the

replenishment of the fund?

To replenish the petty cash fund

Controlling Petty Cash Payments

Make ethical judgments

in business.

Objective 6

Ethics and Accounting

Code of Conduct 88%

0.75 —

0.50 —

0.25 —

Professional Code of Ethics

 Accountants are held to very high standards

of conduct

 There is no compromising

 Would you hire an accountant who is

“almost always” honest?

 Internal controls rely upon basic honesty

and integrity

End of Chapter

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