ppt_08 internal control and cash

8/16/2019 Ppt_08 Internal Control and Cash

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AccountingAccounting

PrinciplesPrinciplesSecond Canadian EditionSecond Canadian Edition

Prepared by:

Carole Bowman, Sheridan College

Weygandt · Kieso · Kimmel ·Trenholm


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INTERNAL CONTROLINTERNAL CONTROL

AND CASHAND CASH

CHAPTERCHAPTER

88


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INTERNAL CONTROLINTERNAL CONTROL

Internal control consists of the policies

and procedures adopted within a business

in order to:

3. Safeguard its assets

4. aintain the accurac! and reliabilit! of

its accounting records


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Authorization

Segregation of duties

Documentation

procedures

Safeguarding assets and

records

Independent verification

ILLUSTRATIONILLUSTRATION 8-18-1

PRINCIPLES OF INTERNAL CONTROLPRINCIPLES OF INTERNAL CONTROL


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Independent verification:

• ()ternal verification indicates whetherthe compan!*s financial statements

fairl! present its financial position andresults of operations in accordance with+""'.

•

Internal verification involves review,comparison, and reconciliation ofinformation from two sources.

PRINCIPLES OF INTERNAL CONTROLPRINCIPLES OF INTERNAL CONTROL


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Independent Internal Verificatin

ILLUSTRATIONILLUSTRATION 8-!8-!

RELATIONSHIP "ET#EEN SE$RE$ATION OF DUTIESRELATIONSHIP "ET#EEN SE$RE$ATION OF DUTIESAND INDEPENDENT INTERNAL VERIFICATIONAND INDEPENDENT INTERNAL VERIFICATION

Acc%ntin& E'pl(ee A A))i)tant Ca)*ier "

A))i)tant C'ptrller C

Maintains cash balances Maintains custody of per bookscash on hand

Makes monthly comparisons: reports any irreconcilable differences to comptroller

Se&re&atin

f D%tie)


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LI+ITATIONS OF INTERNALLI+ITATIONS OF INTERNAL

CONTROLCONTROL#ostbenefit

#ollusionSize of business

-uman element


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#ash includes coins, currenc!, cheues,mone! orders, and mone! on hand or on

deposit at a ban$ or similar depositor!.

Internal control over cash is imperative inorder to safeguard cash and assure

the accurac! of the

accounting records for cash.

CASHCASH


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&ocuments should include:

1. remittance advices

2. cash register tapes3. deposit slips

#ash should be stored in safes and ban$vaults.

"ccess to storage areas should be limited toauthorized personnel.

#ash registers should be used in e)ecuting

over0the0counter receipts.

CONTROL OVER CASH RECEIPTSCONTROL OVER CASH RECEIPTS


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&ail! cash counts and dail! comparisons oftotal receipts should be made.

"ll personnel who handle cash receipts

should be bonded and reuired to ta$evacations.

"n important tool in control of over0the0counter receipts is cash registers that are

visible to customers.

CONTROL OVER CASH RECEIPTSCONTROL OVER CASH RECEIPTS


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'renumbered cheues should be used andeach cheue should be supported b! anapproved invoice or other

document. lan$ cheues should be stored

in a safe.

1. "ccess should be restricted to

authorized personnel.

2. " cheue writer machine should beused to imprint the amount on the

cheue in indelible in$.

CONTROL OVER CASH DIS"URSE+ENTSCONTROL OVER CASH DIS"URSE+ENTS


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(ach cheue should be compared with the

approved invoice before it is issued.

ollowing pa!ment, the approved invoiceshould be stamped '"I&.

P a i d

CONTROL OVER CASH DIS"URSE+ENTSCONTROL OVER CASH DIS"URSE+ENTS


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" pett! cash fund is used to pa! relativel! smallamounts.

/peration of the fund, often called an imprest

s!stem, involves1. establishing the fund,

2. ma$ing pa!ments from the fund, and

3. replenishing the fund.

"ccounting entries are reuired when

1. the fund is established,

2. the fund is replenished, and

3. the amount of the fund is changed.

PETT, CASH FUNDPETT, CASH FUND


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ESTA"LISHIN$ THE FUNDESTA"LISHIN$ THE FUND

hen the fund is established, a cheue

pa!able to the pett! cash custodian is issued

for the stipulated amount.

hen the fund is established, a cheue

pa!able to the pett! cash custodian is issued

for the stipulated amount.

1

1


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REPLENISHIN$ THE FUNDREPLENISHIN$ THE FUND

/n arch 15 the pett! cash custodian reuests a

cheue for 678. %he fund contains 613 cash and

pett! cash receipts for postage, 644, freight out,

637, and miscellaneous e)penses, 65.





$ENERAL OURNALDate Acc%nt Title) and E.planatin De/it Credit

+ar0 1 P)ta&e E.pen)eFrei&*t O%t+i)cellane%) E.pen)e

Ca)* T repleni)* pett( ca)* f%nd0

44

37

5

78


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REPLENISHIN$ THE FUNDREPLENISHIN$ THE FUND









$ENERAL OURNALDate Acc%nt Title) and E.planatin De/it Credit

+ar0 1 P)ta&e E.pen)eFrei&*t O%t+i)cellane%) E.pen)e

Ca)* O2er and S*rt Ca)* T repleni)* pett( ca)* f%nd3

44

37

5

1

77


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%he use of a ban$ minimizes the amount of

currenc! that must be $ept on hand and

contributes significantl! to good internal

control over cash. " compan! can safeguard

its cash b! using a ban$ as

a depositor! and clearinghouse for cheues received

and cheues written.

USE OF A "AN4USE OF A "AN4


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RECONCILIN$ THE "AN4 ACCOUNTRECONCILIN$ THE "AN4 ACCOUNT

9econciliation is necessar! because the

balance per ban$ and balance per boo$s

are seldom in agreement due to time lags

and errors. " ban$ reconciliation should be prepared

b! an emplo!ee who has no other

responsibilities pertaining to cash.


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Ter')Ter')

&eposits in transit&eposits recorded b! depositor that have not

been recorded b! ban$ /utstanding cheues#heues written issued; and recorded b!

compan! that have not been presented topaid

b! ban$

"d


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Ter')Ter')

&ebit memoranda#harges against depositor*s account e.g.

service charges, 9# returned;=Sinsufficient funds; cheues;

#redit memoranda

"mounts that increase depositor*saccount e.g., interest earned;

Illustration 7 11


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an$ 9econciliation

'rocedures

6 'er an$ Statement

0outstanding cheues

>deposits in transit

>0 ban$ errors

? correct cash amount

6 'er oo$s

0=S cheues

0cheue printing or

other service charges

>notes collected b!

ban$

>0 boo$ errors

? correct cash amount

Illustration 7011


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Recncilin& %rnal Entrie)Recncilin& %rnal Entrie)

oo$s(ach reconciling item in

determining the ad


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#ash reported on the alance Sheet

includes:

1. #ash on hand2. #ash in ban$s

3. 'ett! cash

#ash is listed first in the balance sheetbecause it is the most liuid asset.

REPORTIN$ CASHREPORTIN$ CASH


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#ash euivalents are highl! liuid

investments, with maturities of three

months or less when purchased, that can

be converted into a specific amount ofcash.

()amples include mone! mar$et funds,

short0term notes, and treasur! bills.

CASH E5UIVALENTSCASH E5UIVALENTS


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USIN$ THE INFOR+ATION IN THEUSIN$ THE INFOR+ATION IN THE

FINANCIAL STATE+ENTSFINANCIAL STATE+ENTS

ost important asset

'ervasive impact

Aulnerable to theft or

misuse

alancing act needed

to ensure sufficient,

but not e)cess,

uantit!


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USIN$ THE INFOR+ATION IN THEUSIN$ THE INFOR+ATION IN THE

FINANCIAL STATE+ENTSFINANCIAL STATE+ENTS

#ash low Statement : shows where cash

came from and what is was used for.

anagement report: states management*sresponsibilit! for internal controls.


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COP,RI$HTCOP,RI$HT

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