Internal Control and Cash

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Internal Control and Cash




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Presentations text content in Internal Control and Cash

Slide1

Internal Control and Cash

Chapter 7

Copyright ©2014 Pearson Education, Inc. Publishing as Prentice Hall

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Slide2

Learning Objectives

Define internal control and describe the components of internal control and control procedures

Apply internal controls to cash receiptsApply internal controls to cash payments

Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

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Slide3

Learning Objectives

Explain and journalize petty cash transactions

Demonstrate the use of a bank account as a control device and prepare a bank reconciliation and related journal entriesUse the cash ratio to evaluate business performance

Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

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Slide4

Learning Objective 1

Define internal control and describe the components of internal control and control

procedures

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Slide5

What Is Internal Control?

Safeguard assets

Encourage employees to follow company policies

Promote operational efficiency

Ensure accurate, reliable accounting records

Internal Control is an organizational plan and the related measures designed to accomplish the following:

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Slide6

Components of Internal Control

CRIME

C

ontrol procedures

R

isk assessment

I

nformation system

M

onitoring of controls

E

nvironment

Under the Sarbanes-Oxley Act of 2002,

Internal control reports are required for publicly traded companies.

The Public Company Accounting Oversight Board was created.

Stiff penalties were established for financial statement fraud.

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Slide7

Internal Control Procedures

Competent reliable and ethical personnelAssignment of responsibilities Separation of DutiesAuditsDocuments

Electronic devicesE-Commerce

Firewalls, Encryption, Passwords, and Digital SignaturesOther ControlsFireproof vaults

Alarms

Job rotation

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Slide8

>TRY IT!

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Slide9

>TRY IT!

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Slide10

>TRY IT!

©2014 Pearson Education, Inc. publishing as Prentice Hall

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Slide11

>TRY IT!

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Slide12

>TRY IT!

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Slide13

>TRY IT!

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide14

Learning Objective 2

Apply internal controls to cash

receipts

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Slide15

Internal Controls for Cash Receipts

A mail room employee opens all mail and records the checks on a

remittance advice

.

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Slide16

Internal Controls for Cash Receipts

The Treasurer is responsible for depositing the checks, documented with a

deposit receipt

.

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide17

Internal Controls for Cash Receipts

The

remittance advice goes the Accounting Department where is it recorded.

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide18

Internal Controls for Cash Receipts

The Controller’s office matches the

remittance advice

and the deposit receipt.

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide19

>TRY IT!

Fill in the missing information concerning how companies control cash received by mail.

The ________ opens the mail and sends customer checks to the treasurer.

The _______ deposits the customer checks in the bank.

The ________ uses the remittance advices to record the journal entries for cash receipts.

The ________ compares the bank deposit to the journal entry for cash receipts.

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide20

>TRY IT!

Fill in the missing information concerning how companies control cash received by mail.

The

mail room employee

opens the mail and sends customer checks to the treasurer.

The _______ deposits the customer checks in the bank.

The ________ uses the remittance advices to record the journal entries for cash receipts.

The ________ compares the bank deposit to the journal entry for cash receipts.

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide21

>TRY IT!

Fill in the missing information concerning how companies control cash received by mail.

The

mail room employee

opens the mail and sends customer checks to the treasurer.

The

cashier

deposits the customer checks in the bank.

The ________ uses the remittance advices to record the journal entries for cash receipts.

The ________ compares the bank deposit to the journal entry for cash receipts.

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide22

>TRY IT!

Fill in the missing information concerning how companies control cash received by mail.

The

mail room employee

opens the mail and sends customer checks to the treasurer.

The

cashier

deposits the customer checks in the bank.

The

accounting dept.

uses the remittance advices to record the journal entries for cash receipts.

The ________ compares the bank deposit to the journal entry for cash receipts.

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide23

>TRY IT!

Fill in the missing information concerning how companies control cash received by mail.

The

mail room employee

opens the mail and sends customer checks to the treasurer.

The

cashier

deposits the customer checks in the bank.

The

accounting dept.

uses the remittance advices to record the journal entries for cash receipts.

The

controller

compares the bank deposit to the journal entry for cash receipts.

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide24

Learning Objective 3

Apply internal controls to cash

payments

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide25

Controls over Cash Payments

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Slide26

Controls over Cash Payments

Bills are only approved for payment by the accounting department when all the documents related to the transaction are matched together.

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Slide27

Controls over Cash Payments

A payment voucher authorizes a check to be sent to the vendor.

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide28

>TRY IT!

Fill in the missing information.

The vendor ships the inventory and sends a(n) ____________back to the purchaser.

After approving all documents, the purchaser sends a(n) _______ to the vendor.

When ordering merchandise inventory, the purchaser sends a(n) _________ to the vendor.

The purchaser receives the inventory and prepares a(n) _________________.

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide29

>TRY IT!

Fill in the missing information.

The vendor ships the inventory and sends a(n)

invoice

back to the purchaser.

After approving all documents, the purchaser sends a(n) _______ to the vendor.

When ordering merchandise inventory, the purchaser sends a(n) _________ to the vendor.

The purchaser receives the inventory and prepares a(n) _________________.

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide30

>TRY IT!

Fill in the missing information.

The vendor ships the inventory and sends a(n)

invoice

back to the purchaser.

After approving all documents, the purchaser sends a(n)

check

to the vendor.

When ordering merchandise inventory, the purchaser sends a(n) _________ to the vendor.

The purchaser receives the inventory and prepares a(n) _________________.

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide31

>TRY IT!

Fill in the missing information.

The vendor ships the inventory and sends a(n)

invoice

back to the purchaser.

After approving all documents, the purchaser sends a(n)

check

to the vendor.

When ordering merchandise inventory, the purchaser sends a(n)

purchase order

to the vendor.

The purchaser receives the inventory and prepares a(n) _________________.

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide32

>TRY IT!

Fill in the missing information.

The vendor ships the inventory and sends a(n)

invoice

back to the purchaser.

After approving all documents, the purchaser sends a(n)

check

to the vendor.

When ordering merchandise inventory, the purchaser sends a(n)

purchase order

to the vendor.

The purchaser receives the inventory and prepares a(n)

receiving report

.

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide33

Learning Objective 4

Explain and journalize petty cash

transactions

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide34

Petty Cash

Used as an in-office source of cash for small immediate purchases.

Often the responsibility of a designated employee.

No cash is removed unless a corresponding receipt is placed in the “box.”

Uses for Petty Cash

Office donuts

Cleaning supplies

Sympathy flowers

Entertaining clients

Public transportation

Tips for service providers

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Slide35

Setting Up Petty Cash

A check is written for an authorized amount to fund the Petty Cash Fund.

After the check is cashed, the cash is physically placed in the Petty Cash Fund.

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Slide36

Replenishing Petty Cash

A check is written for $82 to replenish the fund.

The receipts (tickets) are used to prepare an entry to record the related expenses.

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide37

Accounting for Petty Cash

When cash is missing, the “Cash Short & Over” is used to record the unaccounted for amount.

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide38

>TRY IT!

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Slide39

>TRY IT!

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide40

>TRY IT!

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide41

Learning Objective 5

Demonstrate the use of a bank account as a control device and prepare a bank reconciliation and related journal

entries

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide42

Bank Account as a Control Device

Signature CardDeposit TicketCheckBank Statement

Electronic Funds TransfersBank Reconciliation

During the 1960’s, Frank Abagnale passed $2.8 million of forged checks in over 26 different countries by exploiting weak controls over bank accounts.

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide43

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Slide44

Bank Reconciliation

A mathematical explanation of the difference between two numbers.With a bank reconciliation, there is often a difference between the bank statement balance and the general ledger cash balance.

Deposits in Transits

Outstanding Checks

Bank Collections

Electronic Funds Transfers

Service Charges

Interest

Nonsufficient Funds Checks

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Slide45

Reconciliation ProcessPart A

Start with the Bank Balance at the end of the period

+ Add Deposits-in-Transit (DIT)

Cash you have collected from customers, but which has not yet been deposited

-

Deduct Outstanding Checks (O/S Checks)

Include ALL uncleared checks, even from previous periods

Adjust for bank errors

= Adjusted Bank Balance

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide46

Reconciliation ProcessPart B

Start with the Book Balance at the end of the period

+

Add Bank Collections, Interest Revenue, and EFT Receipts

(

Cash receipts not already on the books

)

Deduct Services Charges, NSF Checks, and EFT Payments

(

Cash payments not already on the books

)

Adjust for book errors

= Adjusted Bank Balance

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Slide47

Exhibit 7-8 Bank Reconciliation

Bank Balance @ April 30, 2015 = $12,720Book Balance @ April 30, 2015 = $20,850Deposits in transit for April = $9,000

Outstanding Checks for April = $2,000EFT receipt from customer = $100Interest revenue on bank account = $30

Bank service charge = $20EFT payment of water bill = $40NSF Check = $1,200

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Slide48

Exhibit 7-8 Bank Reconciliation

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Slide49

Exhibit 7-8 Bank Reconciliation

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide50

Exhibit 7-8 Bank Reconciliation

Prepare a journal entry for each item on the Book side of the reconciliation

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide51

>TRY IT!

For each of the following items, determine whether the item would be

Added to the bank balance

Subtracted from the bank balance

Added to the book balance

Subtracted from the book balance

Interest revenue earned

NSF check

Deposit in transit

Service charge

Outstanding check

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide52

>TRY IT!

For each of the following items, determine whether the item would be

Added to the bank balance

Subtracted from the bank balance

Added to the book balance

Subtracted from the book balance

Interest revenue earned

NSF check

Deposit in transit

Service charge

Outstanding check

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide53

>TRY IT!

For each of the following items, determine whether the item would be

Added to the bank balance

Subtracted from the bank balance

Added to the book balance

Subtracted from the book balance

Interest revenue earned

NSF check

Deposit in transit

Service charge

Outstanding check

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide54

>TRY IT!

For each of the following items, determine whether the item would be

Added to the bank balance

Subtracted from the bank balance

Added to the book balance

Subtracted from the book balance

Interest revenue earned

NSF check

Deposit in transit

Service charge

Outstanding check

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide55

>TRY IT!

For each of the following items, determine whether the item would be

Added to the bank balance

Subtracted from the bank balance

Added to the book balance

Subtracted from the book balance

Interest revenue earned

NSF check

Deposit in transit

Service charge

Outstanding check

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide56

>TRY IT!

For each of the following items, determine whether the item would be

Added to the bank balance

Subtracted from the bank balance

Added to the book balance

Subtracted from the book balance

Interest revenue earned

NSF check

Deposit in transit

Service charge

Outstanding check

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide57

Learning Objective 6

Use the cash ratio to evaluate business

performance

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide58

Cash Ratio

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall

Slide59

End of Chapter 7

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Copyright ©2014 Pearson Education, Inc. publishing as Prentice Hall


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