c6 - 1 learning objectives power notes 1.basic accounting systems 2.internal control 3.controls over...

C6 - 1

Learning Objectives

Power Notes

1.Basic Accounting Systems2.Internal Control3.Controls Over Cash4.Internal Control of Cash Receipts5.Internal Control of Cash Payments6.Bank Accounts: A Cash Control7.Bank Reconciliation

8. Petty Cash9.Balance Sheet Cash Presentation10. Financial Analysis and Interpretation

Chapter F6

Accounting Systems, Internal Controls, and Cash Accounting Systems, Internal Controls, and Cash

C6

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• Internal Control Framework• Cash Receipts and Controls• Cash Payments and Controls• Bank Reconciliation • Petty Cash Accounting• Ratio of Cash to Current Liabilities

Slide # Power Note Topics

39

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Power NotesChapter F6


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1. Control Environment

Control Environment

Internal Control FrameworkInternal Control Framework

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2. Risk Assessment

Risk Assessment

Control Environment


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2. Risk Assessment

3. Control Procedures

Control Procedures

Risk Assessment

Control Environment


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Power NetworkingBank Reconciliation

July 31, 2003

Balance per bank statement $3,359.78Add deposit in transit 816.20

$4,175.98Deduct outstanding checks:

No. 812 $1,061.00No. 878 435.39No. 883 48.60 1,544.99

Adjusted balance $2,630.99

Balance per depositor’s records $2,549.99Add note and interest collected by bank 408.00

$2,957.99Deduct: Customer NSF check $ 300.00

Bank service charges 18.00Error in recording Ck. No. 879 9.00 327.00

Adjusted balance $2,630.99

AA

BB

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2. Risk Assessment


4. Monitoring

Monitoring

Control Procedures

Risk Assessment

Control Environment


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2. Risk Assessment


4. Monitoring

5. Information and Communication

Communication

Monitoring

Control Procedures

Risk Assessment

Control Environment

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Internal Control ProceduresInternal Control Procedures

• Competent Personnel

• Rotating Duties

• Mandatory Vacations

• Separating Responsibilities for Related Operations

• Separating Accounting and Asset Custody

• Proofs and Security Measures

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Cash Accounts and Internal ControlsCash Accounts and Internal Controls

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)Cash in Bank – (Name of Bank)

Preventive controls protect cash from theft and misuse.

Detective controls are designed to detect theft or misuse of cash and are also preventive in nature.

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1. Over the counter from cash customers.

Use of a cash register is an important control.

2. Received in the mail from credit customers.Cash is in the form of checks.

All cash is sent to the Cashier’s Department.

An employee prepares a bank deposit ticket and makes a bank deposit.

The bank deposit record is sent to the Accounting Department where it is recorded.

Internal Control of Cash ReceiptsInternal Control of Cash Receipts

Cash is normally received from two sources:

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DateDate DescriptionDescription DebitDebit CreditCredit

Cash Short and OverCash Short and Over

Cash 3,142.00Cash Short and Over 8.00

Sales 3,150.00

May 08

To record day’s cash sales. Actual cash received is less than cash register receipts.

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Cash Short and OverCash Short and Over

Cash 3,142.00Cash Short and Over 8.00

Sales 3,150.00

May 08

To record day’s cash sales. Actual cash received is less than cash register receipts.

A debit in the Cash Short and Over account represents an expense.

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Cash Receipts From Credit CustomersCash Receipts From Credit Customers

Accts. ReceivableSales Cash

PURCHASEORDER

SALESORDER

1

1 A purchase order is received and a sales order is prepared.

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PURCHASEORDER

SALESORDER

SHIPPINGREPORT

12


2 Merchandise is shipped and a shipping report is prepared.

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SALESINVOICE


Credit Debit

PURCHASEORDER

SALESORDER

SHIPPINGREPORT

12

3



3 A sales invoice is prepared and sent to customer.

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DEPOSITRECORD


SALESINVOICE


Credit Debit Credit Debit

PURCHASEORDER

SALESORDER

SHIPPINGREPORT

12

34



3 A sales invoice is prepared and sent to customer.

4 Cash is received from customer, deposited, and recorded.

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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 Cash PaymentsInternal Control of Cash Payments

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Cash Payments to SuppliersCash Payments to Suppliers

Accts. PayableCash Merchandise

PURCHASEORDER 1

1 A purchase order is sent to a supplier.

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PURCHASEORDER

RECEIVINGREPORT

1

2


2 Merchandise is received and a receiving report is prepared.

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VOUCHER



Credit Debit

PURCHASEORDER

PURCHASEINVOICE RECEIVING

REPORT

1

2

3



3 A purchase invoice is received and a voucher is prepared.

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VOUCHER


CHECK


Credit Debit Credit Debit

PURCHASEORDER

PURCHASEINVOICE RECEIVING

REPORT

1

2

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3 A purchase invoice is received and a voucher is prepared.

4 Cash is paid to the supplier and recorded.

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Cash Receipts and PaymentsCash Receipts and Payments

CHECK

Accts. PayableCash

Credit Debit

2

1 Cash received on account from customers.

DEPOSITRECORD

Accts. Receivable

Credit Debit

1

Selling Side of BusinessSelling Side of Business Buying Side of BusinessBuying Side of Business

2 Cash paid on account to suppliers.

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Power NetworkingBank Reconciliation

July 31, 2003

Balance per bank statement $3,359.78Add deposit of July 31, not recorded by bank 816.20

$4,175.98Deduct outstanding checks:

No. 812 $1,061.00No. 878 435.39No. 883 48.60 1,544.99

Adjusted balanceAdjusted balance $2,630.99$2,630.99

Balance per depositor’s records $2,549.99Add note and interest collected by bank 408.00

$2,957.99Deduct: Customer NSF check $300.00

Bank service charges 18.00Error in recording Check No. 879 9.00 327.00

Adjusted balanceAdjusted balance $2,630.99$2,630.99

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Bank Reconciliation Journal EntriesBank Reconciliation Journal Entries

AA

BB

Cash 408Notes Receivable 400Interest Revenue 8

Accounts Receivable - T. Ivey 300Miscellaneous Expense 18Accounts Payable - Taylor Co. 9

Cash 327

Jul. 31

To record note collected by bank.

To record customer’s NSF check, bank service charges, and error in recording Check No. 879.

Jul. 31

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Date Description P.R. Debit Credit

BalanceDate Item P.R. Debit Credit Debit Credit

Account: Cash Account No. 11

General Journal

General Ledger

Page 1

AA

BB

7/31 Balance 2,549.99

Bank Reconciliation - Journal and LedgerBank Reconciliation - Journal and Ledger

7/31 Cash 11 408.00408.00Notes Receivable 400.00Interest Revenue 8.00

7/31 Accts. Receivable - T. Ivey 300.00Miscellaneous Expense 18.00Accts. Payable - Taylor Co. 9.00

Cash 11 327.00327.00

7/31 Balance 2,549.997/31 J1 408.00408.00 2,957.997/31 J1 327.00327.00 2,630.99

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Petty Cash AccountingPetty Cash Accounting

Petty Cash 100.00Cash 100.00

Office Supplies 50.00Store Supplies 35.00Misc. Admin. Expense 3.00

Cash 88.00

Note: No entry in Petty Cash account when the fund is replenished.

Aug. 1

To establish a petty cash fund.

To replenish the petty cash fund.

Aug. 31

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Solvency AnalysisSolvency Analysis

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.

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Solvency Measures — The Short-Term CreditorSolvency Measures — The Short-Term Creditor

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 RatioLaettner Co. Oakley Co.

How are these ratios used?How are these ratios used?

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Solvency Measures — The Short-Term CreditorSolvency Measures — The Short-Term Creditor

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 RatioLaettner Co. Oakley Co.

Use: To indicate the worst case assumption that should the business cease to exist, only the cash on hand is available to meet creditor obligations.

Use: To indicate the worst case assumption that should the business cease to exist, only the cash on hand is available to meet creditor obligations.

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This is the last slide in Chapter F6. This is the last slide in Chapter F6.

Power NotesChapter F6


c6 - 1 learning objectives power notes 1.basic accounting systems 2.internal control 3.controls over...

Documents

cash control

cash slide

cash c6 slide

important control

cash accounts

misuse of cash

cash customers

cash register