Kế toán, kiểm toán - Chapter 8: Cash and internal controls

Chapter 8Cash and Internal ControlsInternal Control SystemPolicies and procedures managers use to: Protect assets.Ensure reliable accounting.Promote efficient operations.Urge adherence to company policies. C1Principles of Internal ControlInternal control principles common to all companies:Establish responsibilities.Maintain adequate records.Insure assets and bond key employees.Separate recordkeeping from custody of assets.Divide responsibility for related transactions.Apply technological controls.Perform regular and independent reviews.C1Technology and Internal ControlReducedProcessingErrorsMoreExtensive Testingof RecordsLimitedEvidence ofProcessingCrucialSeparation ofDutiesIncreased E-CommerceC1Limitations of Internal ControlHuman ErrorNegligenceFatigueMisjudgmentConfusionHuman FraudIntent todefeat internalcontrols forpersonal gainC1Human fraud triple-threat: Opportunity, Pressure, and Rationalization.Limitations of Internal ControlThe costs of internal controls must not exceed their benefits.CostsBenefitsC1Control of CashAn effective system of internal control that protects cash and cash equivalents should meet three basic guidelines:Handling cashis separated from recordkeeping of cash.Cash disbursements are made by check.C2Cash receiptsare promptly deposited in a bank.Cash, Cash Equivalents,and LiquidityCashCurrency, coins and amounts on deposit in bank accounts, checking accounts, and some savings accounts. Also includes items such as customer checks, cashier checks, certified checks, and money orders.Cash EquivalentsShort-term, highly liquid investments that are:Readily convertible to known amounts of cash.Subject to an insignificant risk of changes in value.C2Cash and similar assets are called liquid assets because they can be readily used to settle such obligations.Cash ManagementThe goals of cash management are twofold:Plan cash receipts to meet cash payments when due.Keep a minimum level of cash necessary to operate.Effective cash management involves applyingthe following cash management principles: Encourage collection of receivables. Delay payment of liabilities. Keep only necessary levels of assets. Plan expenditures. Invest excess cash.C2Over-the-Counter Cash ReceiptsP1This graphic illustrates that none of the people involved can make a mistake or divert cash without the difference being revealed. Cash Over and ShortSometimes errors in making change are discovered from differences between the cash in the cash register and the record of the amount of cash receipts. P1If a cash register’s record shows $550 but the count of cash in the register is $555, we would prepare the following journal entry:Cash Receipts by MailP1MailroomPreferably, two people are assigned the task of opening the mail. CashierThe cashier deposits the money in a bank. RecordkeeperThe recordkeeper records the amounts received in the accounting records.Control of Cash DisbursementsKeys to Controlling Cash Disbursements Require all expenditures to be made by check.Limit access to checks except for those who have the authority to sign checks.P1Control of cash disbursements is especially important as most large thefts occur from payment of fictitious invoices.Voucher System of Control A voucher system establishes procedures for:Verifying, approving, and recording obligations for eventual cash disbursements.Issuing checks for payment of verified, approved, and recorded obligations.P1Voucher System of ControlP1Petty Cash System of ControlSmall payments required in most companies for items such as postage, courier fees, repairs, and supplies.P2Operating a Petty Cash FundPetty CashCompanyCashierP2AccountantPetty CashierPetty CashPetty CashierOperating a Petty Cash FundP2DeliveryPetty CashierA petty cash fund is used only for business expenses.Operating a Petty Cash FundP2SuppliesServicesTransportation-inOperating a Petty Cash FundPetty cash receipts with either no signature or a forged signature usually indicate misuse of petty cash.Petty CashierP2DeliverySuppliesServicesTransportation-inCompany Cashier$71.30To reimbursepetty cash fundPetty CashierOperating a Petty Cash FundP2AccountantBasic Bank ServicesBank AccountsSignature CardsDeposit TicketsChecksElectronic Funds TransferBank StatementsC2Bank StatementUsually once a month, the bank sends each depositor a bank statement showing the activity in the account.C2Bank ReconciliationA bank reconciliation is prepared periodically to explain the difference between cash reported on the bank statement and the cash balance on company’s books.P3Bank ReconciliationP3The balance of a checking account reported on the bank statement rarely equals the balance in the depositor’s accounting records. Cash Balance per Bank+ Deposits in Transit- Outstanding Checks+/- ErrorsAdjusted Cash BalanceCash Balance per Book+ Collections & Interest- Uncollectible items+/- ErrorsAdjusted Cash BalanceAdjusting entries are recorded for the reconciling items on the book side of the reconciliation. =Illustration of a Bank ReconciliationP3Cash Balance per Bank+ Deposits in Transit- Outstanding Checks+/- ErrorsAdjusted Cash BalanceWe follow nine steps in preparing the bank reconciliation. Illustration of a Bank ReconciliationP3We follow nine steps in preparing the bank reconciliation. Cash Balance per Book+ Collections & Interest- Uncollectible items+/- ErrorsAdjusted Cash BalanceIllustration of a Bank ReconciliationP3We follow nine steps in preparing the bank reconciliation. Adjusting entries are recorded for the reconciling items on the book side of the reconciliation. Illustration of a Bank ReconciliationP3Only the items reconciling the book balance require adjustment. DAYS’ SALES UNCOLLECTEDDays’SalesUncollected Accounts Receivable Net Sales× 365=Indicates how much time is likely to pass beforewe receive cash receipts from credit sales.A1Appendix 8A: Documentation and VerificationP4Receiving ReportPurchase RequisitionPurchase OrderInvoiceVoucherAppendix 8B: Control of Purchase DiscountsP5The net method gives management an advantage in controlling and monitoring cash payments involving purchase discounts. When purchases are recorded at net amounts, a Discounts Lost expense account is recorded and brought to management’s attention.END OF CHAPTER 8