Kế toán tài chính 2 - Chapter 8: Internal control

Internal Control Multimedia Slides by: Gail A. Mestas, MAcc, New Mexico State UniversityChapter 8Learning ObjectivesDefine internal control, explain its basic components and limitations, and give examples of control activities.Apply internal control activities to common merchandising transactions.Demonstrate the control of cash by preparing a bank reconciliation.2Copyright © Houghton Mifflin Company. All rights reserved.Supplemental ObjectivesDemonstrate the use of a simple imprest system.Define voucher system and describe the components and operation of a voucher system.3Copyright © Houghton Mifflin Company. All rights reserved.Internal Control: Basic Components and Control ActivitiesObjective 1Define internal control, explain its basic components and limitations, and give examples of control activities4Copyright © Houghton Mifflin Company. All rights reserved.Internal Control is all the policies and procedures management uses to ensure the reliability of financial reportingcompliance with laws and regulationsand the effectiveness and efficiency of operations5Copyright © Houghton Mifflin Company. All rights reserved.ManagementIs responsible for establishing a satisfactory system of internal controlsMust safeguard the firm’s assets and have reliable accounting recordsEnsure that employees comply with legal requirements and operate the company in the best way possible6Copyright © Houghton Mifflin Company. All rights reserved.Components of Internal ControlManagement must establish five interrelated components of internal controlControl environmentRisk assessmentInformation and communicationControl activitiesMonitoring7Copyright © Houghton Mifflin Company. All rights reserved.The Control EnvironmentIs created by the overall attitude, awareness, and actions of managementIncludes management’s Integrity and ethicsPhilosophy and operating styleOrganizational structureMethod of assigning authority and responsibilityPersonal policies and practicesManagers must ensure that employees are trained and informed8Copyright © Houghton Mifflin Company. All rights reserved.Risk Assessment identifies areas where the risk is high forloss of assets or inaccuracies in the accounting records so that adequate controls can be implementedFor example, in retail stores the risk is high thatEmployees will take cashCustomers will shoplift9Copyright © Houghton Mifflin Company. All rights reserved.Information and Communication relates to the accounting systems established by management, which shouldidentifyassembleanalyzeclassifyrecordand reporta company’s transactions10Copyright © Houghton Mifflin Company. All rights reserved.Control Activities are the policies and procedures management puts in place to see that its directives are carried outSafeguard a company’s assetsEnsure the reliability of accounting records11Copyright © Houghton Mifflin Company. All rights reserved.Monitoring involves management’s regular assessment of the quality of internal controlincluding periodic review of compliance with all policies and proceduresLarger companies hire internal auditors to review the company’s system of internal controlsManagers and owners should conduct these reviews for smaller companies12Copyright © Houghton Mifflin Company. All rights reserved.Control ActivitiesAre a principal way in which internal control is implemented in the accounting systemSafeguard a company’s assets and ensure the reliability of accounting recordsIncludeAuthorizationRecording transactionsDocuments and recordsPhysical controlsPeriodic independent verificationSeparation of dutiesSound personnel procedures13Copyright © Houghton Mifflin Company. All rights reserved.Control Activities (cont’d)AuthorizationAll transactions and activities should be properly authorized by managementRecording transactionsAll transactions should be recordedFacilitates preparation of financial statementsEstablishes accountability for assetsDocuments and recordsDocuments should be adequately designed and used to ensure proper recording of transactions14Copyright © Houghton Mifflin Company. All rights reserved.Control Activities (cont’d)Physical controls Permit access to assets only with management’s authorizationPeriodic independent verificationRecords should be checked against assets by someone other than those responsible for those records and assetsSeparation of dutiesFunctional responsibilities should be separatedDifferent individuals or departments should be responsible for custody of assets and the record keeping for those assetsBonding is the process of checking an employee’s background and insuring the company against theft by that personControl Activities (cont’d)Sound personnel proceduresSupervisionRotation of key personnel among different jobsMandatory vacationsBonding personnel who handle cash or inventories16Copyright © Houghton Mifflin Company. All rights reserved.Limitations of Internal ControlHuman errorMisunderstandingsMistakes in judgmentCarelessnessDistraction FatigueSeparation of duties can be defeated through collusionEmployees secretly agreeing to deceive the company17Copyright © Houghton Mifflin Company. All rights reserved.Limitations of Internal ControlEstablished procedures may become ineffective against employees’ errors or dishonestyControls may become ineffective due to conditions that have changedCosts of internal control systems may exceed the benefits18Copyright © Houghton Mifflin Company. All rights reserved.DiscussionWhy is the separation of duties necessary to ensure sound internal control? What does this principle assume about the relationships of employees in a company and the possibility of two or more of them stealing from the company?Separation of duties is important to sound internal control because a person who combines the responsibilities of keeping records, operating a department, and managing assets would be able to misappropriate assets without detection The separation of duties assumes that two or more employees will not work together to overcome internal controls19Copyright © Houghton Mifflin Company. All rights reserved.Internal Control Over Merchandising TransactionsObjective 2Apply internal control activities to common merchandising transactions20Copyright © Houghton Mifflin Company. All rights reserved.Internal Control Over Merchandising TransactionsCash sales receiptsPurchasesCash paymentsSound internal control activities are very important when assets are involvedAssets are particularly vulnerable when they enter or leave a business, as with merchandising transactions21Copyright © Houghton Mifflin Company. All rights reserved.Internal Control and Management GoalsTwo key goals for the success of merchandising businessesTo prevent losses of cash or inventory as a result of theft or fraudTo provide accurate records of merchandising transactions and account balances22Copyright © Houghton Mifflin Company. All rights reserved.Internal Control and Management Goals (cont’d)Three broader goals for management areKeeping enough inventory on hand without overstockingKeeping enough cash on hand to pay for purchases within the discount periodKeeping credit losses as low as possible by making credit sales only to customers who are likely to pay on time23Copyright © Houghton Mifflin Company. All rights reserved.The Cash Budget projects future cash receipts and disbursementsIs one control used to meet broader management goalsUsed to maintain adequate cash balances so that a company canTake advantage of discounts on purchasesPrepare to borrow money when necessaryPay bills when they are due24Copyright © Houghton Mifflin Company. All rights reserved.Separation of Duties is a control procedure for safeguarding a company’s assets in which the responsibilities for custody of assets and record keeping for those assets are held by separate individuals or departments 25Copyright © Houghton Mifflin Company. All rights reserved.Separation of Duties (cont’d)Makes theft without detection extremely unlikelyUnless two or more employees conspireEasier to accomplish in large businesses versus smaller onesWith smaller businesses, one person may have to carry out several duties26Copyright © Houghton Mifflin Company. All rights reserved.Internal Control over CashVaries based on the size and nature of the businessMost firms should use the following proceduresSeparate the functions of AuthorizationRecordkeepingCustodianship of cashLimit the number of people who have access to cash27Copyright © Houghton Mifflin Company. All rights reserved.Internal Control over Cash (cont’d)Designate specific people who are responsible for handling cashUse bank facilities as much as possibleKeep the amount of cash on hand to a minimumBond all employees who have access to cashPhysically protect cash on hand by usingCash registersCashiers’ cagesSafes28Copyright © Houghton Mifflin Company. All rights reserved.Internal Control over Cash (cont’d)Have a person who does not handle cash make periodic independent verifications of cash on handRecord all cash receipts promptlyDeposit all cash receipts promptlyMake payments by check rather than by currencyHave a person who does not authorize, handle, or record cash transactions reconcile the Cash account29Copyright © Houghton Mifflin Company. All rights reserved.Control of Cash Sales ReceiptsCash may be receivedOver the counterBy mailIn currencyIn the form of a checkCash receipts should be recorded immediately upon receiptRecord by making an entry in a cash receipts journalThis establishes a written record of cash receiptsShould prevent errors and make theft more difficult30Copyright © Houghton Mifflin Company. All rights reserved.Control of Cash Received Through the MailCustomers should be encouraged to pay by check or credit cardCash payments are too vulnerable to theft by employeesCash receipts should be handled by two or more employees31Copyright © Houghton Mifflin Company. All rights reserved.Control of Cash Received Through the Mail (cont’d)Employee opening the mail should make a list in triplicate of the money received includingEach payer’s namePurpose for which money was sentAmountCopy 1Goes with the cash to the cashier who deposits the money32Copyright © Houghton Mifflin Company. All rights reserved.Control of Cash Received Through the Mail (cont’d)Copy 2Goes to the accounting department for recordingCopy 3Kept by the person who opens the mailErrors can easily be caught because the amount deposited by the cashier must agree with the amount received and the amount recorded in the cash receipts journal33Copyright © Houghton Mifflin Company. All rights reserved.Control of Cash Received over the CounterTwo common toolsCash registersPrenumbered sales ticketsEnsure good internal control by separating responsibility forCash receiptsCash depositsRecordkeeping34Copyright © Houghton Mifflin Company. All rights reserved.Using Cash RegistersAmount of cash sale should be rung up at time of salePlace register so customer can see amounts recordedEach register should have a locked-in tapePrints the day’s transactionsAt day’s end, cashier counts cash in the register and turns it into the cashier’s office35Copyright © Houghton Mifflin Company. All rights reserved.Using Cash RegistersAnother employee takes the tape out of the register and records the cash receipts for the day in the cash receipts journalThe amount of cash turned in and the amount recorded on the tape should agreeIf not, any differences should be explainedLarge retail chains may have each cash register tied into a computer that records each transaction as it occurs36Copyright © Houghton Mifflin Company. All rights reserved.Control of Purchases and Cash DisbursementsPay cash only based on specific authorization backed by proof of validity and amount of claimSeparate purchasing and payment dutiesHave at least two people document and verify every action37Copyright © Houghton Mifflin Company. All rights reserved.Internal Control for Purchasing and Paying for Goods and Services38Copyright © Houghton Mifflin Company. All rights reserved.Documents Used in an Internal Control Plan for Purchases and Cash DisbursementsExample of a typical sequencePurchase requisitionPurchase orderInvoiceReceiving reportCheck authorizationCheckBank statementMany variations of this sequence exist39Copyright © Houghton Mifflin Company. All rights reserved.Step 1: A formal request for a purchase is approved by the department head and forwarded to the purchasing department40Copyright © Houghton Mifflin Company. All rights reserved.Step 2: The purchasing department prepares a purchase order, which states quantity, description, price, terms, and other shipping instructions. The purchase order is sent to the vendor (seller) and a copy goes to the accounting department41Copyright © Houghton Mifflin Company. All rights reserved.Step 3: The vendor (seller) ships the items and mails an invoice separately to the accounting department42Copyright © Houghton Mifflin Company. All rights reserved.Step 4: When the goods reach the receiving department, an employee fills out a receiving report, which is sent to the accounting department where it is compared with the invoice43Copyright © Houghton Mifflin Company. All rights reserved.Step 5: The accounting department completes a check authorization and attaches copies of the purchase order, invoice, and receiving report. These are sent to the treasurer.44Copyright © Houghton Mifflin Company. All rights reserved.Step 6: The treasurer examines the documents and issues a check, which is sent to the vendor45Copyright © Houghton Mifflin Company. All rights reserved.Step 7: After the check is cashed by the vendor, it is canceled by the bank and returned with the company’s bank statement. If a check was filled out for the wrong amount or altered, it will show up on the bank reconciliation 46Copyright © Houghton Mifflin Company. All rights reserved.DiscussionName the documents needed for an internal control plan for purchases and cash disbursementsPurchase requisitionPurchase orderInvoiceReceiving reportCheck authorizationCheck with a remittance adviceBank statement47Copyright © Houghton Mifflin Company. All rights reserved.Accounting For DiscountsObjective 3Demonstrate the control of cash by preparing a bank reconciliation48Copyright © Houghton Mifflin Company. All rights reserved.Bank Reconciliations account for the difference between the balance appearing on the bank statement and the balance of the Cash account in a company’s recordsAre a necessary step in internal control49Copyright © Houghton Mifflin Company. All rights reserved.Bank Reconciliations (cont’d)Most common transactions shown in a company’s records but not entered in the bank records includeOutstanding checksChecks the company has issued and recorded but do not yet appear on the bank statementDeposits in transitDeposits mailed or taken to the bank but not received in time to be recorded on the bank statement50Copyright © Houghton Mifflin Company. All rights reserved.Bank Reconciliations (cont’d)Most common transactions that appear on the bank statement but not in a company’s records includeService chargesFees charged by the bank on checking accountsNSF (nonsufficient funds) checksChecks deposited by the company that are not paid when presented by the bank to the issuer’s bankThe bank charges the company’s account and returns the check to the company51Copyright © Houghton Mifflin Company. All rights reserved.Bank Reconciliations (cont’d)Miscellaneous debits and creditsFees charged by the bank for stopping payment on checks and printing checksAmounts are reported to the company by a debit memorandum included with the monthly bank statementInterest incomeBanks commonly pay interest on certain accounts52Copyright © Houghton Mifflin Company. All rights reserved. Illustration of a Bank Reconciliation1. A $276.00 deposit was mailed to the bank on October 31 and has not been recorded by the bank53Copyright © Houghton Mifflin Company. All rights reserved. Illustration of a Bank Reconciliation2. Five checks issued in October or earlier have not been paid by the bank54Copyright © Houghton Mifflin Company. All rights reserved. Illustration of a Bank Reconciliation3. A deposit of October 6 was incorrectly recorded in the company’s books as $330.00. The bank correctly recorded the deposit as $300.0055Copyright © Houghton Mifflin Company. All rights reserved. Illustration of a Bank Reconciliation4. A credit memorandum was enclosed with the bank statement showing a note had been collected in the amount of $280.00 along with interest of $20.00. A debit memorandum was enclosed for the $5.00 collection fee56Copyright © Houghton Mifflin Company. All rights reserved. Illustration of a Bank Reconciliation5. An NSF check was returned with the statement for $128.14. The NSF check from Arthur Clubb was not reflected in the company’s books57Copyright © Houghton Mifflin Company. All rights reserved. Illustration of a Bank Reconciliation6. A debit memorandum for the monthly $12.50 service charge was enclosed with the bank statement58Copyright © Houghton Mifflin Company. All rights reserved. Illustration of a Bank Reconciliation7. Interest earned by the company on its average balance was $15.6259Copyright © Houghton Mifflin Company. All rights reserved. Illustration of a Bank ReconciliationAfter all items have been listed on the reconciliation, total the columns. The adjusted bank balance should equal the adjusted book balance60Copyright © Houghton Mifflin Company. All rights reserved. Recording Transactions After ReconciliationAll items reported by the bank but not yet recorded by the company must be recorded in the general journal61Copyright © Houghton Mifflin Company. All rights reserved. Recording Transactions After Reconciliation (cont’d)62Copyright © Houghton Mifflin Company. All rights reserved.DiscussionWould a deposit in transit be included as an adjustment to the bank balance or book balance on a bank reconciliation? Would it be added to or subtracted from the balance?A deposit in transit would be added to the bank balance on a bank reconciliation. The deposit was recorded in the books before being sent to the bank and is therefore already reflected in the book balance.63Copyright © Houghton Mifflin Company. All rights reserved.Petty Cash ProceduresSupplemental Objective 4Demonstrate the use of a simple imprest system64Copyright © Houghton Mifflin Company. All rights reserved.Petty Cash FundUsed for small disbursements that are impractical to pay by checkPostage stampsIncoming postageShipping charges dueOther minor purchasesPens, paper, etc.The cash fund can be controlled by using an imprest system65Copyright © Houghton Mifflin Company. All rights reserved.Imprest SystemA petty cash fund established for a fixed amountEach payment from the fund is documented by a voucherThe fund is periodically reimbursed by the exact amount necessary to restore it to the original balanceBased on the vouchers66Copyright © Houghton Mifflin Company. All rights reserved. Establishing the Petty Cash FundDetermine Amount needed to cover small expenditures for a two- to four-week periodEmployee who will administer the petty cash fundCompany issues a check for this amount, which is cashedThe money is placed in the petty cash box, drawer, or envelope67Copyright © Houghton Mifflin Company. All rights reserved.DiscussionWhat is an imprest petty cash system?An imprest patty cash system is a petty cash fund established for a fixed amount. Each payment from the fund is documented by a voucher. The fund is periodically reimbursed by the exact amount necessary to restore it to the original balance. This amount should equal the total amount of the vouchers68Copyright © Houghton Mifflin Company. All rights reserved.Voucher SystemsSupplemental Objective 5Define voucher system and described the components and operation of a voucher system69Copyright © Houghton Mifflin Company. All rights reserved.Voucher System is any system that gives documentary proof of and written authorization for business transactionsConsists of records and procedures for systematically gathering, recording, and paying expenditures70Copyright © Houghton Mifflin Company. All rights reserved.Voucher SystemInternal control provided by separating duties and responsibilities in the following functionsAuthorization of expendituresReceipt of goods and servicesValidation of liabilityBy examination of invoices from suppliers for correctness of prices, extensions (quantity x price), shipping costs, and credit termsPayment of expenditure by check71Copyright © Houghton Mifflin Company. All rights reserved.Voucher SystemEvery liability must be recorded as soon as it is incurred by preparing a voucherA voucher is a written authorization and checks are issued only for approved vouchersNo one person has the authority to both incur expenses and to issue checksThe written approval for each transaction leaves a trail of documentary evidence called an audit trail72Copyright © Houghton Mifflin Company. All rights reserved.Components of a Voucher SystemVouchersVoucher checksA voucher registerA check registerMost systems have these components, although there is more than one way to set up a voucher system73Copyright © Houghton Mifflin Company. All rights reserved.Vouchers serve as the basis of an accounting entryAll vouchers are sequentially numberedA separate voucher is attached to each bill as it comes in74Copyright © Houghton Mifflin Company. All rights reserved.Front of a Voucher FormContains important information about the expenditure and the authorizing signatures required for payment75Copyright © Houghton Mifflin Company. All rights reserved.Back of a Voucher FormContains information about the accounts76Copyright © Houghton Mifflin Company. All rights reserved.Voucher Checks tell the payee the reason the check was issuedThe information is written either on the check itself or on a detachable stubRegular checks can also be used efficiently77Copyright © Houghton Mifflin Company. All rights reserved.Voucher Register is a book of original entry in which vouchers are recorded after they have been approvedTakes the place of a purchases journal in companies that use special-purpose journals78Copyright © Houghton Mifflin Company. All rights reserved.Voucher Register (cont’d)All expenditures are recorded in a voucher registerOnly purchases of merchandise on credit are recorded in a single-column purchases journalA Vouchers Payable column replaces the Accounts Payable column79Copyright © Houghton Mifflin Company. All rights reserved.Voucher RegisterCopyright © Houghton Mifflin Company. All rights reserved.Check Register is the journal in which checks are listed as they are writtenReplaces the cash payments journalThe incurrence of a liability is recorded in the voucher registerIts payment is recorded in the check register81Copyright © Houghton Mifflin Company. All rights reserved.Check RegisterCopyright © Houghton Mifflin Company. All rights reserved.Operation of a Voucher SystemFive steps in the operation of a voucher systemPreparing the voucherRecording the voucherPaying the voucherPosting the voucher and check registersSummarizing unpaid vouchers83Copyright © Houghton Mifflin Company. All rights reserved.Preparing the VoucherPrepare a voucher for each expenditureAttach all documents to the voucher to submit it for approvalPurchase ordersInvoicesReceiving reports84Copyright © Houghton Mifflin Company. All rights reserved.Preparing the VoucherIf a separate account is used for payroll, a voucher is prepared to cover the total payrollThe check for the voucher is deposited in the payroll accountIndividual payroll checks are drawn on the payroll account85Copyright © Houghton Mifflin Company. All rights reserved.Recording the VoucherAll approved vouchers should be recorded in the voucher registerVouchers that do not have appropriate approvals should be investigated immediatelyJuly 3 704 Belmont 7/13 205 1,200 1,200 Products86Copyright © Houghton Mifflin Company. All rights reserved.Paying the VoucherVouchers are placed in an unpaid voucher file after being recordedMay be filed by due date and by vendor within due date so that checks can be written at the appropriate timesEnsures that discounts for prompt payment can be takenAfter payment, vouchers are filed by voucher number87Copyright © Houghton Mifflin Company. All rights reserved.Paying the Voucher (cont’d)A few days before the voucher is dueA check for the correct amount, accompanied by the voucher and supporting documents, is presented to the person authorized to sign the checksPayment is entered in the check register20xxJuly 13 205 Belmont Products 704 1,200 24 1,17688Copyright © Houghton Mifflin Company. All rights reserved.At the time the merchandise is returned or the allowance givenRecord an entry on the general journalMake a notation on the voucher in the voucher file Purchase Return or Allowance Applied to a VoucherSome companies cancel the original voucher and prepare a new one for the amount to be paid89Copyright © Houghton Mifflin Company. All rights reserved.Purchase Return or Allowance Applied to a Voucher (cont’d)At the time of payment, only the net amount of the voucher should be paid and recorded in the check registerNet amount Original amount less return or allowance and any applicable discount 90Copyright © Houghton Mifflin Company. All rights reserved.Posting the Voucher and Check RegistersVery similar to posting the purchases journal and cash payments journalDifferenceThe Vouchers Payable account is substituted for the Accounts Payable account91Copyright © Houghton Mifflin Company. All rights reserved.Summarizing Unpaid VouchersAt the end of each accounting period, total the unpaid voucher file to prove the balance of the Vouchers Payable accountBecause the sum of the unpaid vouchers should always equal the credit balance of the Vouchers Payable account, a subsidiary ledger is unnecessary92Copyright © Houghton Mifflin Company. All rights reserved.Schedule of Unpaid Vouchers93Copyright © Houghton Mifflin Company. All rights reserved. Reconciling the Voucher Register and Check Register94Copyright © Houghton Mifflin Company. All rights reserved. Reconciling the Voucher Register and Check Register95Copyright © Houghton Mifflin Company. All rights reserved. Reconciling the Voucher Register and Check Register96Copyright © Houghton Mifflin Company. All rights reserved.Vouchers Payable and the Balance SheetThe account title Vouchers Payable may appear on a company's balance sheetPreferred term is Accounts Payable, even when a voucher system is in place97Copyright © Houghton Mifflin Company. All rights reserved.DiscussionIs a voucher the same thing as a check?No. A voucher is a written authorization prepared for each expenditure when it becomes an obligation to pay. Checks are written only for approved vouchers.98Copyright © Houghton Mifflin Company. All rights reserved.Time for ReviewDefine internal control, explain its basic components and limitations, and give examples of control activitiesApply internal control activities to common merchandising transactionsDemonstrate the control of cash by preparing a bank reconciliation99Copyright © Houghton Mifflin Company. All rights reserved.And Finally Demonstrate the use of a simple imprest systemDefine voucher system and describe the components and operation of a voucher system100Copyright © Houghton Mifflin Company. All rights reserved.