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devry Accounting 212 FINANCIAL ACCOUNTING ch04 stud

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devry Accounting 212 FINANCIAL ACCOUNTING chp4

devry Accounting 212 FINANCIAL ACCOUNTING chp4

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  • 1. Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 1
  • 2. Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 2
  • 3. Internal Control and CashChapter 4 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 3
  • 4. Learn about fraud and how much it costs Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 4
  • 5. Fraud• Intentional misrepresentation of facts• Causes injury or damage to another party• Large problem that increases each year Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 5
  • 6. Types of Fraud Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 6
  • 7. Fraud Triangle Motive Opportunity Rationalization Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 7
  • 8. Internal Control• Primary way fraud and errors are:• Management and Board of Directors implements a: Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 8
  • 9. Objectives of Internal Control Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 9
  • 10. Sarbanes-Oxley Act (SOX)• Federal law requiring public companies to have system of internal controls• Provisions Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 10
  • 11. Set up an internal control system Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 11
  • 12. Components of Internal Control Risk Assessment Control EnvironmentMonitoring Control Procedures Information System Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 12
  • 13. Control Environment• Tone at the top• Key ingredient Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 13
  • 14. Risk Assessment• Identify business risks• Establish procedures to deal with risks Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 14
  • 15. Information System and ControlProcedures• Information System• Control procedures Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 15
  • 16. Monitoring Controls• Prohibit one employee from process transaction completely• Program controls into computerized system• Hired auditors to monitor controls Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 16
  • 17. Internal Control Procedures• Smart Hiring Practices• Separation of Duties• Comparison and Compliance Monitoring Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 17
  • 18. Internal Control Procedures• Adequate Records• Limited Access• Proper Approvals Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 18
  • 19. SCALP• Smart hiring practices and segregation of duties• Comparisons and compliance monitoring• Adequate records• Limited access• Proper approvals Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 19
  • 20. Information Technology (IT)• Accounting systems rely on more than ever before• Basic attributes of internal control do not change• Use of computers can greatly improve speed and accuracy Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 20
  • 21. Safeguard Controls Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 21
  • 22. Internal Controls for E-Commerce• Pitfalls of e-commerce• Security measures Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 22
  • 23. Costs and Benefits of InternalControl• Ways good internal control can be circumvented• The stricter the internal control, the more it costs Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 23
  • 24. Bank Account as Control Device Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 24
  • 25. Bank Account Documents• Signature card• Deposit ticket• Check Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 25
  • 26. The Bank Statement• Reports• Electronic Funds Transfer (EFT) Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 26
  • 27. Bank Reconciliation• Two records of a business’s cash• Amounts are usually different• Bank reconciliation explains differences Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 27
  • 28. Prepare and use a bank reconciliation Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 28
  • 29. Bank Reconciliation ItemsBank Side Book Side• ADD • ADD• Deposits in transit • Bank collections• Certain bank errors • Interest revenue• SUBTRACT • EFT receipts• Outstanding checks • Certain book errors• Certain bank errors • SUBTRACT • Service charges • NSF checks • EFT payments • Certain book errors Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 29
  • 30. Exercise 4-32BBank: Books:Balance, September 30 Balance, September 30Add: Add:Deposit in transit EFT rent collection Less: Service chargesLess: NSF checksOutstanding checks Correction of error Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 30
  • 31. Summary of Reconciling ItemsBANK BALANCE - ALWAYS BOOK BALANCE - ALWAYSAdd deposits in transit Add bank collections, interest revenue and EFT receiptsSubtract outstanding checks Subtract services charges, NSF checks, EFT paymentsAdd or subtract correction of bank Add or subtract correction of bookerrors errors Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 31
  • 32. Journalizing Bank ReconciliationItems• All items on the book side of the bank reconciliation require journal entries• If the item is added to book side• If the items is subtracted from the book side Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 32
  • 33. JOURNALDate Accounts and explanation Debit Credit Cash Interest revenue To record interest earned on the bank statement Cash Accounts receivable Account receivable collected by bank Miscellaneous expense Cash Bank service charges Accounts receivable Cash NSF check returned by bank Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 33
  • 34. Apply internal controls to cash receipts andcash payments Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 34
  • 35. Internal Control over Cash Receipts• Cash is easy to steal• All transactions ultimately affect cash• Cash receipts should be deposited quickly• Companies can receive cash Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 35
  • 36. Cash Receipts over the Counter• Point-of-sale terminals provide control over cash receipts• Customer issued a receipt as proof of purchase• Sales associate turns in cash drawer at end of shift• Accounting department reconciles sales per terminal to cash in drawer Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 36
  • 37. Cash Receipts by Mail Mailroom Remittance Checks advices Accounting Treasurer Department Deposit Debit to receipt Cash Bank Controller Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 37
  • 38. Controls Over Payments by Check• Payment by check is an internal control Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 38
  • 39. Cash Payments by Check 1 Purchase Order 2 3 Company Inventory CompanyReceiving A X Report 2 Invoice 4 Check Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 39
  • 40. Internal Control for Purchasing• Segregate the following duties Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 40
  • 41. Payment Packet Receiving Report Invoice Purchase Order Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 41
  • 42. Petty Cash• Small fund to make minor purchases• One employee is responsible for the accounting• Set amount of cash• Voucher prepared for each payment• Sum of fund plus paid voucher should equal set amount Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 42
  • 43. Use a budget to manage cash Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 43
  • 44. Budgeting• Budget• Cash budget• Steps Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 44
  • 45. Expected Cash Balance If expected cash is greater than ? minimum needed If expected cash is less than minimum ? needed Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 45
  • 46. Cash BudgetBeginning cash balanceBudgeted cash receipts: Collections from customers Dividends from investments Sale of plant and equipmentBudgeted cash payments: Purchases of inventory Operating expenses Purchase of long-term assets Payment of dividends Payment of long-term debtCash available (needed)Budgeted cash balance, end of periodCash available for investing or (newfinancing needed) Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 46
  • 47. Exercise 4-25A Cole Communications Cash Budget Cash, December 31, 2010 Budgeted Cash Receipts: Collections from customers Sale of assets Budgeted Cash Payments: Costs and services Operating expenses Purchase of equipment Payment of long-term debt Payment of dividends Cash available Budgeted cash available New financing needed Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 47
  • 48. Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. 48