Kế toán, kiểm toán - Chapter 7: Internal control and cash
Cash is reported in both the statement of financial position and the statement of cash flows
Statement of cash flows shows the receipts and payments of cash
Cash is the most liquid asset and is listed first in the current assets section of the statement of financial position
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CHAPTER 7:INTERNAL CONTROL AND CASHLO 1: Explain the components of an internal control system, including its control activities and limitations.LO 2: Apply the key control activities to cash receipts and payments.LO 3: Prepare a bank reconciliation.LO 4: Explain the reporting and management of cash.LEARNING OBJECTIVESThe systems adopted within a company to help it achieve:Reliable financial reportingEffective and efficient operationsCompliance with relevant laws and regulationsAlso help prevent and detect errors, which cause unintentional misstatementsAn effective way to prevent and detect fraudInternal ControlGood internal control systems have five primary components:Control environmentRisk assessmentControl activitiesInformation and communicationMonitoring activitiesInternal Control (Continued)Control activities include:Assignment of responsibilitySegregation of dutiesDocumentationPhysical controlsReview and reconciliationControl ActivitiesSpecific control activities used by a company will depend on:The risks it is facing, and management’s assessment The size and nature of the companyControl Activities (Continued)An intentional act to misappropriate (steal) assets or to misstate financial statementsExamples of misstatements:Recording expenses as assetsOverstating useful lives of assetsRecording revenues that do not existFraudWhat are some examples of control activities a movie theatre might have?Discussion QuestionCan only provide reasonable assurance that assets are safeguarded and records are reliableLimitations include:Cost / benefit considerationsHuman error Collusion Management overrideLimitations of Internal ControlCash is highly susceptible to theftWhat is cash?Coins, currency, cheques, money ordersMoney on hand or in bankGeneral rule: if bank will accept for deposit, it is considered cashCash ControlsOver-the-counter, mail-in, and electronic funds transfer (EFT) receiptsInternal control over cash receipts is more effective when cash receipts are deposited into the bank account daily or are made by electronic funds transferOther examples of control activities over cash receipts?Cash ReceiptsControl activities over cash payments are more effective when payments are made by cheque or by electronic funds transfer (EFT), rather than in cashGood controls include:Dual signatures on chequesSegregation of dutiesUse pre-numbered cheques and account for numerical continuityPay electronically instead of by chequeOther examples of control activities over cash payments?Cash PaymentsSafeguards cash by using a bank as a depository and clearinghouse for cheques received and writtenMinimizes amount of currency that must be kept on handProvides a second record of transactionsOne by the businessOne by the bankThese two accounts can be reconciledUse of a BankUnderstanding Debits and CreditsBank(Your Cash Account is a Liability to the Bank)Books(Cash is an Asset to the Company)ChequeDebit (decrease)Credit (decrease)DepositCredit (increase)Debit (increase)Timing differencesThe period after a cheque is written and dated but not yet presented to or paid by the bank (outstanding cheques)The period between receipts being recorded by the company and receipts being recorded by the bank (deposits in transit)Errors by either party in recording transactionsDifferences Between Company Records and Bank StatementThis reconciles the balance per the company’s bank account with the cash balance per the general ledger (“books”)Makes them agreeBoth the books and bank balance are reconciled to their adjusted (correct) cash balanceAdjusted cash balance = reconciled balanceReconciling the Bank AccountBank Reconciliation ProceduresReconciling items per bank:Deposits in transit (+)Outstanding cheques (-)Bank errors (+ / -)Bank Reconciliation Procedures (Continued)Reconciling items per books:EFT collections, interest earned and other deposits (+)For example, EFT collection from customer on account if not previously recordedEFT payments, service charges, interest charges and other payments (-)For example, bank service chargesBook errors (+ / -)Bank Reconciliation Procedures (Continued)BooksEach reconciling item in determining the adjusted balance per books MUST be journalized and postedBankDo NOT journalize any entries on bank sideBank Reconciliation Procedures (Continued)Why is a bank reconciliation an important part of a company’s internal control over cash?Discussion QuestionCash is reported in both the statement of financial position and the statement of cash flowsStatement of cash flows shows the receipts and payments of cashCash is the most liquid asset and is listed first in the current assets section of the statement of financial positionReporting CashCash can be combined with cash equivalentsShort-term highly liquid held-for-trading investments that are subject to insignificant risk of changes in valueIf cash is in a deficit or overdraft at year-end, it is reported as a current liability called bank indebtednessReporting Cash (Continued)Cash that is restricted (not available for general use) is reported separately as a current or non-current assetCompensating balance, such as a requirement to maintain a minimum bank balance, is a form of restrictionReporting Cash (Continued)Managing CashDo you use a cash budget? How does/can a cash budget help you manage your cash?Discussion QuestionComparing IFRS and ASPECOPYRIGHTCopyright © 2017 John Wiley & Sons Canada, Ltd. All rights reserved. Reproduction or translation of this work beyond that permitted by Access Copyright (The Canadian Copyright Licensing Agency) is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons Canada, Ltd. The purchaser may make back-up copies for his or her own use only and not for distribution or resale. The author and the publisher assume no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information contained herein.
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