Bài giảng Fundamental Financial Accounting Concepts - Chapter 6: Internal Control and Accounting for Cash

Internal Control and Accounting for CashChapter SixMcGraw-Hill/IrwinMcGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.Internal Controls6-*Key Features of Internal ControlSeparation of DutiesQuality of EmployeesBonded EmployeesRequired AbsencesProcedures ManualAuthority and ResponsibilityPrenumbered DocumentsPhysical ControlPerformance Evaluations6-*LimitationsInternal controls can be circumvented by collusion among employees. Two or more employees working together can hide embezzlement by covering for each other. No system can completely prevent fraud.6-*Accounting for CashControllingCashCash receipts should be recorded immediately upon receipt and deposited intact daily.Cash payments should be made by prenumbered check.Up to date signature card should be maintained.A deposit ticket should be used for all deposits.A monthly bank reconciliation should be prepared by an independent party.6-*Reconciling the Bank StatementThe bank reconciliation reports on the differences between the balance on the bank statement and the balance in the general ledger cash account. The reconciliation results in the true cash balance that will appear on the balance sheet.6-*Reconciling the Bank StatementIf an error is found on the bank statement, an adjustment for it is made to the unadjusted bank balance to determine the true cash balance. An error made on our books requires an adjusting journal entry to correct.6-*Adjusting the BooksEvery reconciling item that appears on the unadjusted book balance section requires a journal entry to adjust the general ledger cash balance to the true cash balance. 6-*Cash Short and OverWhen using a cash register, employees sometimes make mistakes in collecting cash or making change for customers. If the cash register does not reconcile by a small amount at the end of the day, we use an account called Cash Short and Over to force a balance.Assume a cashregister was to havea balance of $500,but contained only$499 at the end ofthe day.6-*Using Petty Cash FundsA petty cash fund is used to make small expenditures that cannot wait for the formal check- writing process. The fund is operated on an imprest basis. This means that when the fund gets low on cash it is replenished. The petty cashier is always responsible for the cash in the fund. This is an excellent internal control.6-*Using Petty Cash FundsEstablishing a $300 petty cash fund.Treasurer prepares a $300 check payable to the petty cashier.Petty cashier takes the check to the bank and gets $300 cash for the fund.6-*Using Petty Cash FundsRecord expenses paid from the petty cash fund.Treasurer prepares a $216.00 check payable to the petty cashier.Petty cashier takes the check to the bank and gets $216.00 cash for the fund.The fund is now returned to its $300 balance.6-*The Financial AnalystHow can a financial analyst know that a company really did follow GAAP?AuditsCPAsCertified Public Accountants6-*Materiality and Financial AuditsAuditors do not guarantee that financial statements are absolutely correct—only that they are materially correct.Material ItemAn error, or other reporting problem, that would influence the decision of an average prudent investor.6-*Types of Audit OpinionsUnqualifiedAdverseQualifiedDisclaimer6-*The Securities and Exchange Commission (SEC)The SEC is a government agency authorized to establish and enforce the accounting rules for public companies.Public companies, have to follow the reporting rules of the SEC as well as GAAP.6-*Sarbanes-Oxley Act (SOX) of 2002Prior to 2002, the SEC left much of the regulation and oversight of independent audits to the AICPA. However, SOX established the PCAOB to enforce audit standards for SEC audits.6-*End of Chapter Six6-*