Tải bản đầy đủ

Financial accounting the impact on decision makers 9e chapter 6

Chapter 6
Cash and Internal Control

 Cash:
 Readily

available to pay debts

 Various forms of


 Coin and

currency on hand
 Cash on deposit in the form of checking and savings
 Undeposited, cashier, and certified checks

LO 1

Cash Equivalents
 Investment

readily convertible to known
amount of cash
 Maturity—three

months or less

 Example:
 Commercial paper
 Treasury

bills issued by the federal government
 Money market funds
 Six-month

bank certificate of deposit would not
be a cash equivalent

Exhibit 6.1—Cash and Cash Equivalents on the
Balance Sheet and the Statement of Cash Flows

Cash Management
 Tools of

cash management:

 Cash

flows statement
 Cash budgets
 Bank reconciliations
 Petty cash funds

LO 2

Reading a Bank Statement
 Bank statement

: a detailed list, provided by the
bank, of all activity for a particular account
during the month.
 Outstanding check : check written by a
company but not yet presented to the bank for
 Deposit in transit : deposit recorded on the
books but not yet reflected on the bank

Bank Reconciliation
 Reconcile

or resolve any differences between
balance on the bank statement with balance
shown in the accounting records
 Steps used in preparing a bank reconciliation:

Prepare a list of the deposits in transit
Prepare a list of the outstanding checks
Prepare a list of credit memoranda
Prepare a list of debit memoranda
Identify any errors

Credit Memoranda and Debit
 Credit memoranda
 Additions

on a bank statement for such items as
interest paid on the account and notes collected by
the bank for the customer

 Debit


 Deductions

on a bank statement for items such as
NSF checks and various service charges

Step 1: Prepare a list of the
deposits in transit
 Trace

deposits listed on the bank statement to
the books
 Identify the deposits in transit
 Any

deposits recorded on the books but not yet
shown on the bank statement

 Add

to the bank balance

Step 2: Prepare a List of the
Outstanding Checks
 Arrange

the canceled checks in numerical order
 Trace each of them to the books
 Any

checks recorded on the books but not yet listed
on the bank statement are outstanding

 Subtract

from the bank balance

Step 3: Prepare a List of Credit
 List all

items, other than deposits, shown as
additions on the bank statement
 Interest

paid by the bank
 Amounts collected by the bank for the customer
 For these

items, bank increases, or credits, its
liability to the company on its own books

Step 4: Prepare a List of Debit
 List all

amounts, other than canceled checks,
shown as subtractions on the bank statement

 Service charges

liability is created on the books of the bank
when a company deposits money in a bank
 Bank reduces the amount of its liability for
these various items and debits the liability on its
own books

Step 5: Identify any Errors
 Identify

any errors made by the bank or by the
company in recording cash transactions

Bank Reconciliation
Bank Reconciliation
Balance per bank


Adjusted balance


Balance per books


Adjusted balance


Example 6.2—Preparing a Bank

Need for Adjustments to the Records

are basis for

Petty Cash fund
 Money

kept on hand for making minor
disbursements rather than by writing checks
 Periodically, the fund is replenished
 When fund is replenished, an adjustment is
made to record its replenishment and to
recognize the various expenses incurred

Internal Control System
 Policies

and procedures necessary to ensure:

 Safeguarding

of an entity’s assets
 Reliability of accounting records
 Accomplishment of overall company objectives

LO 3

Sarbanes-Oxley Act of 2002—SOX
 An

act of Congress in 2002
 Intended to bring reform to corporate
accountability and stewardship in the wake of a
number of major corporate scandals

Sarbanes-Oxley Act of 2002—SOX
 Internal control report: a

report required by
Section 404 of the Sarbanes-Oxley Act
 Maintain an adequate

internal control structure
 Assesses effectiveness of internal control structure
 Outside

auditors must issue report on
company’s internal control

Sarbanes-Oxley Act of 2002—SOX
 Public Company

Accounting Oversight Board
(PCAOB): five-member body created by SOX
 Set

auditing standards in the United States

 Board

of directors: consists of key officers of a
corporation and outside members responsible
for general oversight of the affairs of the entity
 Audit committee: a subset of the board of
 Provides

direct contact between the stockholders
and the independent accounting firm

The Control Environment
 Factors

that influence internal control:

 Management’s

competence and operating style
 Personnel policies and practices
 Board of directors, particularly audit committee

The Accounting System
 Methods

and records used to accurately report
entity’s transactions and maintain
accountability for assets and liabilities
 Use of a journal is an integral part of all
accounting systems
 Can be completely manual, fully computerized,
or a mixture of both

Internal Control Procedures
 Administrative


 Procedures

concerned with efficient operation of
the business and adherence to managerial policies

 Accounting


 Procedures

concerned with safeguarding the assets
or the reliability of the financial statements

LO 4

Internal Control System
 Important internal control procedures:
 Proper

 Segregation of duties
 Independent verification
 Safeguarding of assets and records
 Independent review and appraisal
 Design and use of business documents

Tài liệu bạn tìm kiếm đã sẵn sàng tải về

Tải bản đầy đủ ngay