1. Cash controls must provide assurance that payments are made only for authorized transactions and ensure cash is used efficiently. A voucher system authorizes and records liabilities and cash payments by verifying quantities, prices, and accuracy of supporting documents like purchase orders and invoices.
2. A bank reconciliation is a listing of items causing the cash balance reported by the bank to differ from the company's records, like outstanding checks, deposits in transit, and errors. It involves comparing bank statements to company records and adjusting entries.
3. This chapter discusses procedures for internal control over cash receipts and payments. It also describes accounting for bank accounts, petty cash, and presenting cash on the balance sheet.
This document discusses accounting for merchandising businesses. It begins by distinguishing the activities and financial statements of service businesses from merchandising businesses. It then describes the accounting treatment for various merchandising transactions including sales, purchases, transportation costs, and discounts. Specific topics covered include the perpetual and periodic inventory methods, income statements, statements of owner's equity, balance sheets, journal entries for cash, credit and discount sales, and accounting for the costs of goods sold. The objectives are to understand how to account for the key activities of a merchandising business.
1. The document discusses the steps in completing the accounting cycle, including preparing adjusting and closing entries from a work sheet.
2. It provides examples of adjusting entries for supplies, prepaid insurance, unearned rent, wages payable, fees revenue, and depreciation expense using a sample work sheet.
3. The work sheet is used to incorporate adjustments into the trial balance to produce adjusted account balances and financial statements.
Chapter 01 - Principal Accounting (Warren Reeve Fess)Arfan Fahmi
This document provides an overview of accounting and business concepts. It defines key terms like assets, liabilities, owner's equity, and the accounting equation. It describes the different types of businesses and business organizations. It explains the accounting process and financial statements. It provides an example of basic business transactions and how they affect the accounting equation for a sample proprietorship.
The document discusses key accounting concepts including the cash and accrual bases of accounting, the accounting equation, fundamental accounting principles, the accounting cycle, analyzing and recording transactions, and preparing a trial balance. It specifically provides an example illustrating how to analyze transactions for a travel agency and record the impacts in a T-account format to maintain the balance sheet equation of assets = liabilities + equity. Key steps in the accounting cycle are analyzing transactions, posting to ledgers, and preparing an initial trial balance to check balances.
The document describes the accounting cycle and the use of a worksheet. It discusses how a worksheet allows accountants to make adjustments and prepare financial statements more easily and timely. The key steps in using a worksheet include: [1] preparing an initial trial balance, [2] entering adjustments, [3] extending adjusted balances to columns for the adjusted trial balance, income statement, and balance sheet, and [4] preparing financial statements from the worksheet columns. The worksheet is a temporary working paper and not a permanent accounting record.
1) On November 1, Chris Clark deposited $25,000 into a new bank account for NetSolutions, recording the transaction in the journal.
2) On November 5, NetSolutions purchased land for $20,000 in cash, decreasing the cash account and increasing the land asset account.
3) Throughout the month, NetSolutions incurred various expenses totaling $3,650 which were paid in cash, decreasing the cash account and increasing the various expense accounts.
This document discusses accounting for merchandising businesses. It begins by distinguishing the activities and financial statements of service businesses from merchandising businesses. It then describes the accounting treatment for various merchandising transactions including sales, purchases, transportation costs, and discounts. Specific topics covered include the perpetual and periodic inventory methods, income statements, statements of owner's equity, balance sheets, journal entries for cash, credit and discount sales, and accounting for the costs of goods sold. The objectives are to understand how to account for the key activities of a merchandising business.
1. The document discusses the steps in completing the accounting cycle, including preparing adjusting and closing entries from a work sheet.
2. It provides examples of adjusting entries for supplies, prepaid insurance, unearned rent, wages payable, fees revenue, and depreciation expense using a sample work sheet.
3. The work sheet is used to incorporate adjustments into the trial balance to produce adjusted account balances and financial statements.
Chapter 01 - Principal Accounting (Warren Reeve Fess)Arfan Fahmi
This document provides an overview of accounting and business concepts. It defines key terms like assets, liabilities, owner's equity, and the accounting equation. It describes the different types of businesses and business organizations. It explains the accounting process and financial statements. It provides an example of basic business transactions and how they affect the accounting equation for a sample proprietorship.
The document discusses key accounting concepts including the cash and accrual bases of accounting, the accounting equation, fundamental accounting principles, the accounting cycle, analyzing and recording transactions, and preparing a trial balance. It specifically provides an example illustrating how to analyze transactions for a travel agency and record the impacts in a T-account format to maintain the balance sheet equation of assets = liabilities + equity. Key steps in the accounting cycle are analyzing transactions, posting to ledgers, and preparing an initial trial balance to check balances.
The document describes the accounting cycle and the use of a worksheet. It discusses how a worksheet allows accountants to make adjustments and prepare financial statements more easily and timely. The key steps in using a worksheet include: [1] preparing an initial trial balance, [2] entering adjustments, [3] extending adjusted balances to columns for the adjusted trial balance, income statement, and balance sheet, and [4] preparing financial statements from the worksheet columns. The worksheet is a temporary working paper and not a permanent accounting record.
1) On November 1, Chris Clark deposited $25,000 into a new bank account for NetSolutions, recording the transaction in the journal.
2) On November 5, NetSolutions purchased land for $20,000 in cash, decreasing the cash account and increasing the land asset account.
3) Throughout the month, NetSolutions incurred various expenses totaling $3,650 which were paid in cash, decreasing the cash account and increasing the various expense accounts.
1) The document discusses accounting for merchandising operations under a perpetual inventory system. It describes how purchases, sales, returns and allowances are recorded.
2) Purchases are recorded by debiting inventory and crediting accounts payable. Sales are recorded by crediting sales revenue and debiting cost of goods sold and inventory.
3) Returns and allowances are contra accounts that are credited to offset original debit entries for purchases or sales. This summary highlights the key accounting entries for a merchandising business.
The document describes the accounting recording process, including how accounts, debits, credits, journals, ledgers, and trial balances are used. It explains that journals are used to record transactions chronologically, while ledgers contain accounts for assets, liabilities, equity, revenues, and expenses. Transactions are posted from journals to ledgers to update account balances. A trial balance is prepared to check that total debits equal total credits. While useful, a trial balance does not guarantee accurate records as errors can still exist.
Accounting is an information system that identifies, records, and communicates the economic events of an organization to interested users. The chapter discusses key accounting concepts such as the accounting equation, assets, liabilities, and owner's equity. It also explains the accounting process, accounting principles, and how business transactions affect the basic accounting equation. The chapter concludes with an explanation of the four main financial statements - the income statement, statement of owner's equity, balance sheet, and statement of cash flows - and how they are prepared.
Adjusting entries are journal entries made at the end of an accounting period to allocate revenues and expenses to the appropriate period. This is necessary because under the accrual basis of accounting, revenues are reported in the period they are earned and expenses in the period they are incurred. Some accounts, like prepaid expenses and unearned revenue, require adjustment to adhere to the revenue recognition and matching principles. The document provides examples of accounts that need adjustment, the cash versus accrual accounting methods, and the purpose of adjusting entries in ensuring financial statements reflect the proper period's financial activity.
The document discusses audit procedures for cash, including extending procedures to check for fraud when internal controls are weak. It also covers proving cash, common cash defalcation techniques like skimming and lapping, and how to detect them. Finally, it discusses objectives for auditing marketable securities, such as existence, completeness, and proper valuation.
- The document outlines an accounting course for managers, covering topics like financial accounting, depreciation, ratio analysis, fund flow, cost accounting, and more.
- It defines key accounting concepts like identifying, measuring, classifying, recording, and communicating financial information. It also distinguishes transactions from events.
- Basic accounting terms are introduced, like assets, liabilities, equity, capital, and accounting principles and concepts are discussed, like the business entity, money measurement, and revenue recognition concepts.
Here are the key steps to solving this problem:
1. Calculate 10% of accounts receivable to estimate uncollectible accounts:
- 10% of $30,000 is 0.1 * $30,000 = $3,000
2. Add the existing balance in the allowance account:
- $2,000 existing balance
3. The total estimated uncollectible accounts is $3,000 + $2,000 = $5,000
Therefore, the adjusting entry is:
Bad Debt Expense 5,000
Allowance for Doubtful Accounts 5,000
This document discusses fraud and principles of internal control. It begins by introducing the learning objectives which are to discuss fraud and internal control principles, apply them to cash, identify bank account control features, and explain cash reporting. It then defines fraud and lists the three factors that contribute to fraudulent activity. Several principles of internal control are outlined, including establishing responsibility, segregating duties, documentation procedures, physical controls, and independent internal verification. Examples are provided to illustrate how missing specific controls enabled several fraud scenarios.
Bab 8 - Valuation of Inventories, a Cost-Basis Approachmsahuleka
This document discusses key concepts related to inventory valuation using a cost basis approach. It identifies major classifications of inventory, distinguishes between perpetual and periodic inventory systems, and describes how different cost flow assumptions like FIFO, LIFO, and average cost affect the valuation of inventory and calculation of cost of goods sold. The learning objectives cover inventory classification, the costs included in inventory valuation, LIFO reserves and liquidations, advantages and disadvantages of different methods, and why companies select certain valuation methods.
An introduction to the three main financial statements using a tree analogy. If you like this, just imagine what I can do in person at your next event. Go to www.geniwhitehouse.com or www.evenanerd.com for more information and my list of topics, expertise, and nerdy obsessions.
My next deck is going to include basset hounds (see my post from 2023). That is a promise.
This chapter discusses accounting for cash and receivables. It defines cash as the most liquid asset and identifies items that are considered cash such as currency and bank deposits. Receivables are defined as claims against customers and others for money, goods, or services, and the main types are accounts receivable and notes receivable. The chapter explains the accounting issues around recognition, valuation, and disposition of accounts and notes receivable. It also describes how to report and analyze receivables in financial statements.
The document discusses the accounting cycle and provides examples of classifying accounts, journalizing transactions, preparing ledger accounts, and posting journal entries to the ledger. It begins by classifying various accounts as personal, real, or nominal. Examples are then provided of journalizing transactions and posting the journal entries to update the appropriate ledger accounts. The key steps in journalizing, preparing ledger accounts, and posting entries from the journal to the ledger are outlined. Compound or combined journal entries involving multiple debits and/or credits are also introduced.
CHAPTER 2 Recording Business TransactionsGene Carboni
This document discusses key accounting concepts such as accounts, ledgers, debits and credits, journals, and trial balances. It provides examples to illustrate how to record business transactions using double-entry accounting. Specifically, it shows a journal entry to record an initial investment in a business. It also demonstrates how to post journal entries to accounts in the general ledger and prepare a trial balance to check the equality of debits and credits.
Here are the steps to analyze and post a journal entry:
1. Analyze the journal entry to determine the accounts involved and whether each account increased or decreased.
2. Determine if each account is an asset, liability, equity, revenue or expense account based on the general ledger chart of accounts.
3. Translate increases in asset and expense accounts and decreases in liability, equity and revenue accounts into debits, and increases in liability, equity and revenue accounts and decreases in asset and expense accounts into credits.
4. Record the debits and credits in the appropriate general ledger accounts.
Posting
Question
LO 6
This document discusses key aspects of audit reports, including:
- The auditor's standard report provides an opinion on whether the financial statements are presented fairly and in accordance with GAAP.
- Audit reports typically include opinions on the financial statements themselves (balance sheet, income statement, etc.) and the related disclosures.
- Modifications to the standard report may be needed if certain conditions are present, such as material departures from GAAP or scope limitations.
- The auditor's report for public clients follows specific requirements regarding titles, addresses, references to auditing standards, and inclusion of opinions on internal control over financial reporting.
- The opinion paragraph states the auditor's opinion on whether the financial statements
The document discusses accounting for intangible assets such as goodwill, patents, trademarks, and research and development costs. It describes characteristics of intangible assets, how to value and amortize them, types of intangibles including goodwill, procedures for recording goodwill, accounting for impairment of intangibles, conceptual issues and accounting treatment for research and development costs.
Accounting Global 9th Edition Horngren Solutions Manualmelofufa
This document contains sample exercises and solutions for recording business transactions in journals and preparing trial balances. It includes multiple journal entries recording various business transactions, as well as trial balances for several sample businesses. The exercises cover key accounting concepts like debits and credits, normal balances of accounts, and preparing and analyzing trial balances.
Bab 4 Income Statement and Related Informationmsahuleka
The document discusses key elements and objectives related to preparing and understanding income statements, including:
- The uses and limitations of income statements in evaluating past performance and predicting future cash flows
- Components of single-step and multiple-step income statements and how they differ
- Reporting of irregular items like discontinued operations, extraordinary items, and changes in accounting principles
- Intraperiod tax allocation and where earnings per share information is reported
The document provides an overview of accounting information systems. It discusses the basic concepts of an AIS, including that an AIS collects and processes transaction data and communicates financial information. It also describes the nature and purpose of subsidiary ledgers, which are used to track individual account balances like accounts receivable. Additionally, the document explains how to record transactions in special journals, including sales, purchases, cash receipts and payments journals, in order to organize similar transactions and reduce general journal entries. It compares AIS under GAAP and IFRS.
Cash flow management by Vinod Keni at #TiEInstitutetiemumbai
This deck was presented by Vinod Keni (Avishkar Ventures/ Intellecap) at the #TiEInstitute knowledge Series session for Growth stage entrepreneurs on managing finance led growth by. This is one of the three modules covered by Vinod at this session.
Presented in July 2013
Financial Intelligence for Entrepreneurs - TiE Mumbai (Part 2)tiemumbai
Understanding the basics of finance is one of the important things for entrepreneurs and professionals to run businesses effectively. The presentation covers the basics of balance sheets and profit & loss accounts. Helps understand assets, liabilities and other financial terms in a simple way.
1) The document discusses accounting for merchandising operations under a perpetual inventory system. It describes how purchases, sales, returns and allowances are recorded.
2) Purchases are recorded by debiting inventory and crediting accounts payable. Sales are recorded by crediting sales revenue and debiting cost of goods sold and inventory.
3) Returns and allowances are contra accounts that are credited to offset original debit entries for purchases or sales. This summary highlights the key accounting entries for a merchandising business.
The document describes the accounting recording process, including how accounts, debits, credits, journals, ledgers, and trial balances are used. It explains that journals are used to record transactions chronologically, while ledgers contain accounts for assets, liabilities, equity, revenues, and expenses. Transactions are posted from journals to ledgers to update account balances. A trial balance is prepared to check that total debits equal total credits. While useful, a trial balance does not guarantee accurate records as errors can still exist.
Accounting is an information system that identifies, records, and communicates the economic events of an organization to interested users. The chapter discusses key accounting concepts such as the accounting equation, assets, liabilities, and owner's equity. It also explains the accounting process, accounting principles, and how business transactions affect the basic accounting equation. The chapter concludes with an explanation of the four main financial statements - the income statement, statement of owner's equity, balance sheet, and statement of cash flows - and how they are prepared.
Adjusting entries are journal entries made at the end of an accounting period to allocate revenues and expenses to the appropriate period. This is necessary because under the accrual basis of accounting, revenues are reported in the period they are earned and expenses in the period they are incurred. Some accounts, like prepaid expenses and unearned revenue, require adjustment to adhere to the revenue recognition and matching principles. The document provides examples of accounts that need adjustment, the cash versus accrual accounting methods, and the purpose of adjusting entries in ensuring financial statements reflect the proper period's financial activity.
The document discusses audit procedures for cash, including extending procedures to check for fraud when internal controls are weak. It also covers proving cash, common cash defalcation techniques like skimming and lapping, and how to detect them. Finally, it discusses objectives for auditing marketable securities, such as existence, completeness, and proper valuation.
- The document outlines an accounting course for managers, covering topics like financial accounting, depreciation, ratio analysis, fund flow, cost accounting, and more.
- It defines key accounting concepts like identifying, measuring, classifying, recording, and communicating financial information. It also distinguishes transactions from events.
- Basic accounting terms are introduced, like assets, liabilities, equity, capital, and accounting principles and concepts are discussed, like the business entity, money measurement, and revenue recognition concepts.
Here are the key steps to solving this problem:
1. Calculate 10% of accounts receivable to estimate uncollectible accounts:
- 10% of $30,000 is 0.1 * $30,000 = $3,000
2. Add the existing balance in the allowance account:
- $2,000 existing balance
3. The total estimated uncollectible accounts is $3,000 + $2,000 = $5,000
Therefore, the adjusting entry is:
Bad Debt Expense 5,000
Allowance for Doubtful Accounts 5,000
This document discusses fraud and principles of internal control. It begins by introducing the learning objectives which are to discuss fraud and internal control principles, apply them to cash, identify bank account control features, and explain cash reporting. It then defines fraud and lists the three factors that contribute to fraudulent activity. Several principles of internal control are outlined, including establishing responsibility, segregating duties, documentation procedures, physical controls, and independent internal verification. Examples are provided to illustrate how missing specific controls enabled several fraud scenarios.
Bab 8 - Valuation of Inventories, a Cost-Basis Approachmsahuleka
This document discusses key concepts related to inventory valuation using a cost basis approach. It identifies major classifications of inventory, distinguishes between perpetual and periodic inventory systems, and describes how different cost flow assumptions like FIFO, LIFO, and average cost affect the valuation of inventory and calculation of cost of goods sold. The learning objectives cover inventory classification, the costs included in inventory valuation, LIFO reserves and liquidations, advantages and disadvantages of different methods, and why companies select certain valuation methods.
An introduction to the three main financial statements using a tree analogy. If you like this, just imagine what I can do in person at your next event. Go to www.geniwhitehouse.com or www.evenanerd.com for more information and my list of topics, expertise, and nerdy obsessions.
My next deck is going to include basset hounds (see my post from 2023). That is a promise.
This chapter discusses accounting for cash and receivables. It defines cash as the most liquid asset and identifies items that are considered cash such as currency and bank deposits. Receivables are defined as claims against customers and others for money, goods, or services, and the main types are accounts receivable and notes receivable. The chapter explains the accounting issues around recognition, valuation, and disposition of accounts and notes receivable. It also describes how to report and analyze receivables in financial statements.
The document discusses the accounting cycle and provides examples of classifying accounts, journalizing transactions, preparing ledger accounts, and posting journal entries to the ledger. It begins by classifying various accounts as personal, real, or nominal. Examples are then provided of journalizing transactions and posting the journal entries to update the appropriate ledger accounts. The key steps in journalizing, preparing ledger accounts, and posting entries from the journal to the ledger are outlined. Compound or combined journal entries involving multiple debits and/or credits are also introduced.
CHAPTER 2 Recording Business TransactionsGene Carboni
This document discusses key accounting concepts such as accounts, ledgers, debits and credits, journals, and trial balances. It provides examples to illustrate how to record business transactions using double-entry accounting. Specifically, it shows a journal entry to record an initial investment in a business. It also demonstrates how to post journal entries to accounts in the general ledger and prepare a trial balance to check the equality of debits and credits.
Here are the steps to analyze and post a journal entry:
1. Analyze the journal entry to determine the accounts involved and whether each account increased or decreased.
2. Determine if each account is an asset, liability, equity, revenue or expense account based on the general ledger chart of accounts.
3. Translate increases in asset and expense accounts and decreases in liability, equity and revenue accounts into debits, and increases in liability, equity and revenue accounts and decreases in asset and expense accounts into credits.
4. Record the debits and credits in the appropriate general ledger accounts.
Posting
Question
LO 6
This document discusses key aspects of audit reports, including:
- The auditor's standard report provides an opinion on whether the financial statements are presented fairly and in accordance with GAAP.
- Audit reports typically include opinions on the financial statements themselves (balance sheet, income statement, etc.) and the related disclosures.
- Modifications to the standard report may be needed if certain conditions are present, such as material departures from GAAP or scope limitations.
- The auditor's report for public clients follows specific requirements regarding titles, addresses, references to auditing standards, and inclusion of opinions on internal control over financial reporting.
- The opinion paragraph states the auditor's opinion on whether the financial statements
The document discusses accounting for intangible assets such as goodwill, patents, trademarks, and research and development costs. It describes characteristics of intangible assets, how to value and amortize them, types of intangibles including goodwill, procedures for recording goodwill, accounting for impairment of intangibles, conceptual issues and accounting treatment for research and development costs.
Accounting Global 9th Edition Horngren Solutions Manualmelofufa
This document contains sample exercises and solutions for recording business transactions in journals and preparing trial balances. It includes multiple journal entries recording various business transactions, as well as trial balances for several sample businesses. The exercises cover key accounting concepts like debits and credits, normal balances of accounts, and preparing and analyzing trial balances.
Bab 4 Income Statement and Related Informationmsahuleka
The document discusses key elements and objectives related to preparing and understanding income statements, including:
- The uses and limitations of income statements in evaluating past performance and predicting future cash flows
- Components of single-step and multiple-step income statements and how they differ
- Reporting of irregular items like discontinued operations, extraordinary items, and changes in accounting principles
- Intraperiod tax allocation and where earnings per share information is reported
The document provides an overview of accounting information systems. It discusses the basic concepts of an AIS, including that an AIS collects and processes transaction data and communicates financial information. It also describes the nature and purpose of subsidiary ledgers, which are used to track individual account balances like accounts receivable. Additionally, the document explains how to record transactions in special journals, including sales, purchases, cash receipts and payments journals, in order to organize similar transactions and reduce general journal entries. It compares AIS under GAAP and IFRS.
Cash flow management by Vinod Keni at #TiEInstitutetiemumbai
This deck was presented by Vinod Keni (Avishkar Ventures/ Intellecap) at the #TiEInstitute knowledge Series session for Growth stage entrepreneurs on managing finance led growth by. This is one of the three modules covered by Vinod at this session.
Presented in July 2013
Financial Intelligence for Entrepreneurs - TiE Mumbai (Part 2)tiemumbai
Understanding the basics of finance is one of the important things for entrepreneurs and professionals to run businesses effectively. The presentation covers the basics of balance sheets and profit & loss accounts. Helps understand assets, liabilities and other financial terms in a simple way.
#MENT: Online & Mobile Trends - India & Worldwide by Gurmit Singh, MD Yahoo I...tiemumbai
Gurmit Singh, MD - Yahoo India shares his views about the Online & Mobile Trends in India and around the World. Also a part of the presentation shows the transformation & evolution of Yahoo.
This session was part of MENT (Media & Entertainment Network by TiE Mumbai). MENT is an initiative, by TiE Mumbai, towards enabling and empowering entrepreneurs in the media & entertainment industry across Mumbai & Pune. It aims to provide a platform for entrepreneurs, founders and CXOs in the industry to interact with peers, solve common founder challenges and facilitate curated networking.
Term sheets explained by viral rathod, everstone capital advisors at the work...tiemumbai
Viral Rathod, Everstone Capital Advirsors explains the various clauses in the term sheet, the exit strategies and other terms from both - an investor and entrepreneurs perspective. He highlights the key areas that an entrepreneur needs to focus on while entering into a investment deal and signing the term sheet.
Elizabeth chapman talks about how to impress the investor in just 6 slides. m...tiemumbai
How do you make the perfect pitch to the investor? Elizabeth Chapman, Chapman Consulting shares with entrepreneurs the key 6 points that they must include in their pitch and most importantly - "What not to pitch"
This document discusses the management of cash. It begins by defining cash and its importance as the most liquid asset. It then discusses determining the optimal cash balance, collecting cash efficiently from receivables, and disbursing cash payments in a timely manner. The document outlines various motives for holding cash like transaction, precautionary and speculative motives. It also discusses objectives of cash management like maintaining an optimal cash balance.
ACCT1 C4 ACCT FOR CASH By Aregawi Gebru(MA).pdfAregawi Gebru
Internal controls over cash are important for safeguarding assets and ensuring accurate accounting records. Key controls include separating cash handling duties, requiring authorization for payments, reconciling bank statements, and using pre-numbered documents. A petty cash fund is used to make small payments, while a change fund provides currency for customer transactions. Shortages and overages are recorded in a cash short and over account. A voucher system authorizes expenditures and records liabilities and payments.
Internal control over cash and peety cashJemalSeid25
This document provides an overview of internal controls and cash management. It defines internal control as a system established by a company to safeguard assets and ensure accurate accounting records. The key principles of internal control are segregation of duties, documentation of procedures, and independent verification. Controls over cash receipts and disbursements are also discussed, along with bank reconciliation and cash reporting.
Internal control over cash is important to safeguard assets and ensure accurate accounting records. Key aspects of internal control for cash receipts include segregating duties among employees who handle cash, using prenumbered documents to record transactions, limiting access to cash, and reconciling daily records. Similarly for cash disbursements, important controls are segregating duties, restricting cheque access and signing, and ensuring supporting documentation. Maintaining a petty cash fund and using banks also aids in effective internal control over cash.
Weygandt kieso kimmel_ch08_fraud_internal control and cashTanjina Rahman
The document discusses internal controls over cash, including defining fraud and internal controls, principles of internal controls, and applications of internal controls to cash receipts and disbursements. It describes operating a petty cash fund and control features of a bank account, and explains reporting cash.
The document discusses internal controls and provides guidelines for cash controls, petty cash, cash over and short, banking activities, and bank reconciliation. It explains that internal controls protect assets, ensure reliable accounting, promote efficient operations, and encourage adherence to company policies. Some key principles of internal controls are clearly establishing responsibilities, maintaining adequate records, separating duties, and performing regular reviews.
1. The document defines fraud and internal control, identifies principles of internal control activities, and explains applications of internal control principles to cash receipts and disbursements. It also discusses preparing bank reconciliations, reporting cash, cash management principles, cash budgets, and petty cash funds.
2. Key internal control activities include segregation of duties, documentation procedures, independent verification, and human resource controls. Controls over cash receipts include using prenumbered documents and restricting cash handling. Controls over cash disbursements include using prenumbered checks and a voucher system.
3. Bank reconciliations compare the adjusted cash balance per books to the adjusted cash balance per bank statement. Cash is reported on the balance sheet and
chapter 4Cash, Receivables, and ControlsLearning Goals.docxrobertad6
chapter 4
Cash, Receivables, and Controls
Learning Goals
• Define cash and cash equivalents.
• Know cash control principles and concepts.
• Prepare the bank reconciliation and related adjusting entries.
• Know how to establish and control a petty cash system.
• Understand the accounting concepts and methods pertaining to receivables.
• Master basic calculations and accounting techniques for notes receivable.
Copyright Barbara Chase/Corbis/AP Images
waL80144_04_c04_089-110.indd 1 8/29/12 2:43 PM
90
CHAPTER 4Section 4.1 Concepts of Cash
Chapter Outline
4.1 Concepts of Cash
Cash Management and Control
4.2 Bank Reconciliations
4.3 Petty Cash Funds
4.4 Accounts Receivable
4.5 Direct Write-Off Method
Allowance Techniques for Uncollectible Accounts
Writing Off an Account Against an Allowance
Formalized Receivables and Notes
Credit and Debit Card Transactions
Cash is an interesting asset. It is usually not the most important asset a company pos-sesses, and it is not a very productive asset. However, try to operate without it, and
the results are usually and quickly fatal. It is the accepted medium of exchange and rep-
resents the “blood supply” to keep the business functioning. Therefore, proper cash man-
agement and control is highly important to business success.
4.1 Concepts of Cash
Cash includes currency, coins, bank demand deposits that can be freely withdrawn, undeposited checks from customers, and other items that are acceptable to a bank
for deposit. Some items may seem like cash but are not classified that way: certificates of
deposit, IOUs, stamps, and travel advances. These later items are reported as investments,
supplies, or other more descriptive classifications.
Some companies will expand their reporting of cash to include cash equivalents. These
are very short-term (usually interest-earning) financial instruments like government Trea-
sury bills. They are typically deemed secure and will convert back into cash within 90
days. They are close enough to cash that they are considered to be available to satisfy
obligations, and proper cash management strategies tend to discourage hoarding of large
pools of unproductive currency deposits.
Cash Management and Control
Cash management requires a proper balancing to maintain sufficient cash to meet obli-
gations as they come due and to make sure that idle cash is invested to generate returns
on business assets. Larger organizations may create the position of treasurer whose job
is to manage the business’s cash flows. This person may be responsible for preparing a
cash budget, which is a major component of the cash-planning system. It anticipates and
waL80144_04_c04_089-110.indd 2 8/29/12 2:43 PM
91
CHAPTER 4Section 4.1 Concepts of Cash
depicts cash inflows and outflows for a stated period of time. This tool helps identify and
adjust for anticipated periods of cash deficits or surpluses.
Based on advance knowledge gained via the cash-budge.
The document discusses accounting for cash and cash controls. It defines cash and its characteristics as the most liquid asset. It describes methods of controlling cash including bank checking accounts, petty cash funds, and voucher systems. It discusses bank reconciliation by reconciling the bank statement balance to the company's cash balance in its records. Key steps in bank reconciliation and common reconciling items are also summarized.
The document discusses bank reconciliation statements. It explains that a bank reconciliation statement is prepared to reconcile differences between a business's bank balance recorded in their cash book and the balance shown on their bank statement. Reasons for differences include outstanding checks, deposited funds not cleared, bank charges, and errors. To prepare the reconciliation statement, items increasing one balance are added and items decreasing it are subtracted. This reconciles the two balances and identifies outstanding transactions.
The document discusses various audit procedures related to testing cash, revenue, expenses, investments, financing, and other cycles. It provides examples of substantive tests that can be performed for balances such as plant assets, long-term debt, and cash. It also describes audit evidence that can be used, including cash disbursement journals, bank reconciliations, canceled checks, and confirmations with customers, lenders, and banks. The document is a reference guide for auditors, outlining the types of tests and evidence applicable for different financial statement line items and cycles.
This document provides an overview of chapter 7 from the textbook "Financial Accounting, IFRS Edition" by Weygandt Kimmel Kieso. The chapter covers fraud, internal control, and cash. It defines fraud and internal control, identifies principles of internal control activities, and explains applications of internal control principles to cash receipts and disbursements. It also describes petty cash fund operations, control features of bank accounts including bank reconciliations, and reporting of cash. The document consists of a series of slides with definitions, examples, and review questions.
1) A bank reconciliation statement reconciles the difference between the bank balance in a company's cash book and the bank balance in its bank statement.
2) Differences can arise due to timing delays in transactions being recorded or errors made by the business or bank. Timing differences include cheques that have not cleared and deposits not yet processed.
3) The bank reconciliation statement lists transactions that increase or decrease the cash book balance to reconcile it with the bank statement balance. Preparing this statement verifies the accuracy of both records.
This document discusses fraud prevention and internal controls for banks. It defines fraud and outlines common types of internal and external fraud such as forgery, misposting of deposits, fictitious loan accounts, and check kiting. It also describes key internal controls including proper accounting records, independent balancing, division of duties, dual control, and rotation of duties. The document emphasizes that strong internal controls can help prevent fraud from occurring and ensure the accuracy of bank records.
This document defines and explains the bank reconciliation statement. [1] It reconciles the differences between the bank balance shown in a business's cash book and the balance in their bank statement or passbook. [2] Common causes of differences include outstanding checks and deposits, as well as bank charges and interest that have been applied. [3] Preparing the reconciliation statement regularly helps ensure accurate accounting records and identifies potential errors or fraud.
This document provides an overview and audit procedures for cash accounts at Flores Poultry Farm. It describes the nature of Flores Poultry Farm's business as a sole proprietorship that grows broiler chickens under an agreement with Bounty Agro Ventures Incorporated. It then outlines 42 internal controls over cash transactions, including controls related to petty cash, cash receipts, and cash disbursements. Finally, it lists audit objectives and procedures for auditing the company's cash balances and bank accounts as presented on the balance sheet.
2. Some of the action has been automated,
so click the mouse when you see this
lightning bolt in the lower right-hand
corner of the screen. You can point and
click anywhere on the screen.
Some of the action has been automated,
so click the mouse when you see this
lightning bolt in the lower right-hand
corner of the screen. You can point and
click anywhere on the screen.
3. 1. Describe the nature of cash and the importance
of internal control over cash.
2. Summarize basic procedures for achieving
internal control over cash receipts.
3. Summarize basic procedures for achieving
internal control over cash payments, including
the use of a voucher system.
4. Describe the nature of a bank account and its
use in controlling cash.
ObjectivesObjectivesObjectivesObjectives
After studying thisAfter studying this
chapter, you shouldchapter, you should
be able to:be able to:
After studying thisAfter studying this
chapter, you shouldchapter, you should
be able to:be able to:
4. 5. Prepare a bank reconciliation and
journalize any necessary entries.
6. Account for small cash transactions
using a petty cash fund.
7. Summarize how cash is presented on
the balance sheet.
8. Compute and interpret the ratio of cash
to current liabilities.
ObjectivesObjectivesObjectivesObjectives
5. Control Over CashControl Over Cash
Many companies need several cash
accounts to account for different cash
categories and funds.
Most companies have multiple bank
accounts. The title for each bank account
should be: Cash in Bank—(Name of Bank)
Preventive controls protect cash from theft
and misuse of cash.
Detective controls are designed to detect
theft or misuse of cash and are also
preventive in nature.
6. Retailers’ Sources of CashRetailers’ Sources of CashRetailers’ Sources of CashRetailers’ Sources of Cash
Cash
Receipts
CASHIER’S
DEPARTMENT
ACCOUNTING
DEPARTMENT
Register
records
Mail Receipts
Remittance
advices
8. Controlling Cash ReceivedControlling Cash Received
from Cash Salesfrom Cash Sales
Controlling Cash ReceivedControlling Cash Received
from Cash Salesfrom Cash Sales
19 Cash 3 142 00
Cash Short and Over 8 00
To record cash sales and actual
cash on hand.
Sales 3 150 00
Cash sales for March 19 totaled $3,150.00 perCash sales for March 19 totaled $3,150.00 per
the cash register tape. After removing thethe cash register tape. After removing the
change fund, only $3,142.00 was on hand.change fund, only $3,142.00 was on hand.
Cash sales for March 19 totaled $3,150.00 perCash sales for March 19 totaled $3,150.00 per
the cash register tape. After removing thethe cash register tape. After removing the
change fund, only $3,142.00 was on hand.change fund, only $3,142.00 was on hand.
9. Controlling Cash ReceivedControlling Cash Received
in the Mailin the Mail
Controlling Cash ReceivedControlling Cash Received
in the Mailin the Mail
Most companies’ invoices
are designed so that
customers return a portion
of the invoice, call a
remittance advice.
Most companies’ invoices
are designed so that
customers return a portion
of the invoice, call a
remittance advice.
10. Controlling Cash ReceivedControlling Cash Received
in the Mailin the Mail
Controlling Cash ReceivedControlling Cash Received
in the Mailin the Mail
1. The employee who opens the mail should initially
compare the amount received with the amount on the
remittance advice.
2. The employee opening the mail stamps checks and
money orders “For Deposit Only” in the bank account
of the business.
3. All cash is sent to the Cashier’s Department where
checks and money orders are combined with receipts
from cash sales and a bank deposit ticket is prepared.
11. Controlling Cash ReceivedControlling Cash Received
in the Mailin the Mail
Controlling Cash ReceivedControlling Cash Received
in the Mailin the Mail
4. The remittance advices and their summary totals are
delivered to the Accounting Department where a clerk
prepares the records of the transactions and posts them
to the customer account.
5. The stamped duplicate copy of the deposit ticket is
returned to the Accounting Department where a clerk
compares the receipt with the total amount that should
have been deposited.
12. 1.Cash controls must provide assurance that
payments are made for only authorized
transactions.
2. Cash controls should ensure that cash is used
efficiently.
3. A voucher system provides assurance that
what is being paid for was properly ordered,
received, and billed by the supplier.
Internal Control of CashInternal Control of Cash
PaymentsPayments
13. A voucher system is a set of
procedures for authorizing
and recording liabilities and
cash payments.
A voucher system is a set of
procedures for authorizing
and recording liabilities and
cash payments.
BasicBasic
Features ofFeatures of
the Voucherthe Voucher
SystemSystem
1313
14. Basic Features of theBasic Features of the
Voucher SystemVoucher System
Basic Features of theBasic Features of the
Voucher SystemVoucher System
A voucher system normally uses vouchers.
The system normally has a file for unpaid
vouchers and a file for paid vouchers.
Usually prepared by the Accounting
Department after all necessary supporting
documents are received (purchase order,
supplier’s invoice, and a receiving report).
In preparing the voucher, the accounts
payable clerk verifies the quantity, price, and
mathematical accuracy of the supporting
documents and files the paid voucher.
15. A summary received from
the bank of all account
transaction is called a
statement of account.
A summary received from
the bank of all account
transaction is called a
statement of account.
16. A bank reconciliation is a
listing of the items and amounts
that cause the cash balance
reported in the bank statement to
differ from the balance of the
cash account in the ledger.
A bank reconciliation is a
listing of the items and amounts
that cause the cash balance
reported in the bank statement to
differ from the balance of the
cash account in the ledger.
17. Reasons for Differences Between Depositor’sReasons for Differences Between Depositor’s
Records and the Bank StatementRecords and the Bank Statement
Reasons for Differences Between Depositor’sReasons for Differences Between Depositor’s
Records and the Bank StatementRecords and the Bank Statement
Outstanding checks
Deposits in transit
Service charges
Collections
Not-sufficient-funds (NSF)
checks
Errors
Outstanding checks
Deposits in transit
Service charges
Collections
Not-sufficient-funds (NSF)
checks
Errors
18. Steps in a Bank ReconciliationSteps in a Bank ReconciliationSteps in a Bank ReconciliationSteps in a Bank Reconciliation
1. Compare each deposit listed on the bank statement
with unrecorded deposits appearing on the preceding
period’s reconciliation and with deposit receipts.
2. Compare paid checks with outstanding checks
appearing on the preceding period’s reconciliation and
with recorded checks.
Add deposits not recorded by the bank to theAdd deposits not recorded by the bank to the
balance according to the bank statement.balance according to the bank statement.
Add deposits not recorded by the bank to theAdd deposits not recorded by the bank to the
balance according to the bank statement.balance according to the bank statement.
Deduct checks outstanding that have been paidDeduct checks outstanding that have been paid
by the bank from the balance according to theby the bank from the balance according to the
bank statement.bank statement.
Deduct checks outstanding that have been paidDeduct checks outstanding that have been paid
by the bank from the balance according to theby the bank from the balance according to the
bank statement.bank statement.
3. Compare bank credit memorandums to entries in the
journal.
Add credit memorandums that have not beenAdd credit memorandums that have not been
recorded to the balance according to therecorded to the balance according to the
depositor’s records.depositor’s records.
Add credit memorandums that have not beenAdd credit memorandums that have not been
recorded to the balance according to therecorded to the balance according to the
depositor’s records.depositor’s records.
19. Steps in a Bank ReconciliationSteps in a Bank ReconciliationSteps in a Bank ReconciliationSteps in a Bank Reconciliation
4. Compare bank debit memorandums to entries
recording cash payments.
5. List any errors discovered during the preceding steps.
Deduct debit memorandums that have not beenDeduct debit memorandums that have not been
recorded from the balance according to therecorded from the balance according to the
depositor’s records.depositor’s records.
Deduct debit memorandums that have not beenDeduct debit memorandums that have not been
recorded from the balance according to therecorded from the balance according to the
depositor’s records.depositor’s records.
21. A deposit of $816.20 did not
appear on the bank statement.
A deposit of $816.20 did not
appear on the bank statement.
BANK
Bank’s
books
Beginning balance $3,359.78
Add deposit not
recorded by bank 816.20
$4,175.9
8
Depositor’s
records
Beginning balance $2,549.99
22. BANK
Bank’s
books
Beginning balance $3,359.78
Add deposit not
recorded by bank 816.20
$4,175.9
8
Depositor’s
records
Beginning balance $2,549.99
Add note and interest
collected by bank 408.00
$2,957.9
9
The bank collected a note in the
amount of $400 and the related
interest of $8 for Power Networking
The bank collected a note in the
amount of $400 and the related
interest of $8 for Power Networking
23. A deposit of $637.02 did not appear
on the bank statement.
A deposit of $637.02 did not appear
on the bank statement.
Three checks that were written during the
period did not appear on the bank statement:
#812, $1,061; #878, $435.39, #883, $48.60.
Three checks that were written during the
period did not appear on the bank statement:
#812, $1,061; #878, $435.39, #883, $48.60.
BANK
Bank’s
books
Beginning balance $3,359.78
Add deposit not
recorded by bank 816.20
Deduct outstanding
checks:
No. 812 $1,061.00
No. 878 435.39
No. 883 48.60 1,544.99
$4,175.9
8
Depositor’s
records
Beginning balance $2,549.99
Add note and interest
collected by bank 408.00
$2,957.9
9
24. BANK
Bank’s
books
Deduct outstanding
checks:
No. 812 $1,061.00
No. 878 435.39
No. 883 48.60 1,544.99
Depositor’s
records
Deduct check returned
because of insufficient
funds $300.00
Beginning balance $3,359.78
Add deposit not
recorded by bank 816.20
$4,175.9
8
Beginning balance $2,549.99
Add note and interest
collected by bank 408.00
$2,957.9
9
The bank returned an NSF check from one of the
firm’s customers, Thomas Ivey, in the amount of
$300. This was a payment on account.
The bank returned an NSF check from one of the
firm’s customers, Thomas Ivey, in the amount of
$300. This was a payment on account.
25. Deduct outstanding
checks:
No. 812 $1,061.00
No. 878 435.39
No. 883 48.60 1,544.99
Deduct check return
because of insufficient
funds $300.00
Bank service
charges 18.00
BANK
Bank’s
books
Beginning balance $3,359.78
Add deposit not
recorded by bank 816.20
$4,175.9
8
Depositor’s
records
Beginning balance $2,549.99
Add note and interest
collected by bank 408.00
$2,957.9
9
The bank service charges totaled $18.00.The bank service charges totaled $18.00.
26. BANK
Bank’s
books
Depositor’s
records
Beginning balance $3,359.78
Add deposit not
recorded by bank 816.20
Deduct outstanding
checks:
No. 812 $1,061.00
No. 878 435.39
No. 883 48.60 1,544.99
$4,175.9
8
Beginning balance $2,549.99
Add note and interest
collected by bank 408.00
Deduct check return
because of insufficient
funds $300.00
Bank service
charges 18.00
$2,957.9
9
Error recording
Check No. 879 9.00
Check No. 879 for $732.26 to Taylor Co. on account,
erroneously recorded in journal as $723.26.
Check No. 879 for $732.26 to Taylor Co. on account,
erroneously recorded in journal as $723.26.
327.00
27. BANK
Bank’s
books
Beginning balance $3,359.78
Add deposit not
recorded by bank 816.20
Deduct outstanding
checks:
No. 812 $1,061.00
No. 878 435.39
No. 883 48.60 1,544.99
$4,175.9
8
Adjusted balance $2,630.99
Depositor’s
records
Beginning balance $2,549.99
Add note and interest
collected by bank 408.00
Deduct check return
because of insufficient
funds $300.00
Bank service
charges 18.00
$2,957.9
9
Adjusted balance $2,630.99
Error recording
Check No. 879 9.00 327
28. Now, if desired, we can
prepare a formal
statement for Power
Networking.
Now, if desired, we can
prepare a formal
statement for Power
Networking.
29. Balance per bank statement $3,359.78
Add: Deposit not recorded by bank 816.20
$4,175.98
Deduct: Outstanding checks
No. 812 $1,061.00
No. 878 435.39
No. 883 48.60 1,544.99
Adjusted balance $2,630.99
Balance per depositor’s records $2,549.99
Add: Note and interest collected by bank 408.00
$2,957.99
Deduct: NSF check (Thomas Ivey) returned$300.00
Bank service charges 18.00
Error in recording Check No. 879 9.00 327.00
Adjusted balance $2,630.99
Power Networking
Bank Reconciliation
July 31, 2006
30. Journal entries must be
prepared for those items that
affected the depositor’s side of
the reconciliation.
Journal entries must be
prepared for those items that
affected the depositor’s side of
the reconciliation.
31. Balance per bank statement $3,359.78
Add: Deposit not recorded by bank 816.20
$4,175.98
Deduct: Outstanding checks
No. 812 $1,061.00
No. 878 435.39
No. 883 48.60 1,544.99
Adjusted balance $2,630.99
Balance per depositor’s records $2,549.99
Add: Note and interest collected by bank 408.00
$2,957.99
Deduct: NSF check (Thomas Ivey) returned $300.00
Bank service charges 18.00
Error in recording Check No. 879 9.00 327.00
Adjusted balance $2,630.99
Power Networking
Bank Reconciliation
July 31, 2006
32. July 31 Cash 408 00
Note collected by bank.
Notes Receivable 400 00
Interest Receivable 8 00
Entries Related to a Bank ReconciliationEntries Related to a Bank ReconciliationEntries Related to a Bank ReconciliationEntries Related to a Bank Reconciliation
33. Balance per bank statement $3,359.78
Add: Deposit not recorded by bank 816.20
$4,175.98
Deduct: Outstanding checks
No. 812 $1,061.00
No. 878 435.39
No. 883 48.60 1,544.99
Adjusted balance $2,630.99
Balance per depositor’s records $2,549.99
Add: Note and interest collected by bank 408.00
$2,957.99
Deduct: NSF check (Thomas Ivey) returned $300.00
Bank service charges 18.00
Error in recording Check No. 879 9.00 327.00
Adjusted balance $2,630.99
Power Networking
Bank Reconciliation
July 31, 2006
34. Entries Related to a Bank ReconciliationEntries Related to a Bank ReconciliationEntries Related to a Bank ReconciliationEntries Related to a Bank Reconciliation
July 31 Cash 408 00
Note collected by bank.
Notes Receivable 400 00
Interest Receivable 8 00
30 Accounts Receivable—Thomas Ivey 300 00
Miscellaneous Administrative Exp. 18 00
Accounts Payable—Taylor Co. 9 00
Cash 327 00
NSF check, bank service
charges, and error in
recording Check no. 879.
36. Aug. 1 Petty Cash 100 00
Established petty cash fund.
Cash 100 00
On August 1, issued Check No. 511 for $100On August 1, issued Check No. 511 for $100
to established a petty cash fund.to established a petty cash fund.
On August 1, issued Check No. 511 for $100On August 1, issued Check No. 511 for $100
to established a petty cash fund.to established a petty cash fund.
37. Aug. 31 Office Supplies 50
00
Replenished petty cash fund.
Cash 88 00
At the end of August, the petty cash receiptsAt the end of August, the petty cash receipts
indicated expenditures for the following items:indicated expenditures for the following items:
office supplies, $28, postage (office supplies),office supplies, $28, postage (office supplies),
$22; store supplies, $35, and miscellaneous$22; store supplies, $35, and miscellaneous
administrative items, $3.administrative items, $3.
At the end of August, the petty cash receiptsAt the end of August, the petty cash receipts
indicated expenditures for the following items:indicated expenditures for the following items:
office supplies, $28, postage (office supplies),office supplies, $28, postage (office supplies),
$22; store supplies, $35, and miscellaneous$22; store supplies, $35, and miscellaneous
administrative items, $3.administrative items, $3.
Store Supplies 35 00
Miscellaneous Administrative Exp. 3 00
38. Financial Analysis and InterpretationFinancial Analysis and Interpretation
Solvency is the ability of a business to meet
its financial obligations (debts) as they are
due.
Solvency analysis focuses on the ability of
a business to pay or otherwise satisfy its
current and noncurrent liabilities.
This ability is normally assessed by
examining balance sheet relationships.
39. A. Cash and equivalents $100,000 $ 120,000
B. Current liabilities 400,000 1,500,000
Doomsday ratio A / B 0.25 0.08
Doomsday RatioDoomsday RatioDoomsday RatioDoomsday Ratio
Laettner Co. Oakley Co.
How are these ratios used?How are these ratios used?Use: To indicate the company’s ability to
meet creditors obligations in the
worst case assumption that should
the business cease to exist.
Use: To indicate the company’s ability to
meet creditors obligations in the
worst case assumption that should
the business cease to exist.
Financial Analysis and InterpretationFinancial Analysis and Interpretation