Quản trị Kinh doanh - Chapter 8: Cash and internal controls

Policies and procedures managers use to: Protect assets. Ensure reliable accounting. Urge adherence to company policies. Promote efficient operations.

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Cash and Internal ControlsChapter 8PowerPoint Editor: Beth Kane, MBA, CPACopyright @ 2015 McGraw Hill Education.. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 08-C1: Internal Control 2Internal Control SystemPolicies and procedures managers use to: Protect assets.Ensure reliable accounting.Urge adherence to company policies.Promote efficient operations.C13Sarbanes-Oxley Act (SOX)The Sarbanes-Oxley Act requires managers and auditors of public companies to document and certify the system of internal controls. C1Section 404 of SOX requires that managers document and assess the effectiveness of all internal control processes that can impact financial reporting. 4Principles of Internal ControlInternal control principles common to all companies:Establish responsibilities.Maintain adequate records.Insure assets and bond key employees.Separate recordkeeping from custody of assets.Divide responsibility for related transactions.Apply technological controls.Perform regular and independent reviews.C15Technology and Internal ControlReducedProcessingErrorsMoreExtensive Testingof RecordsLimitedEvidence ofProcessingCrucialSeparation ofDutiesIncreased E-CommerceC16Limitations of Internal ControlHuman ErrorNegligenceFatigueMisjudgmentConfusionHuman FraudIntent todefeat internalcontrols forpersonal gainC1Human fraud triple-threat: Opportunity, Pressure, and Rationalization7Limitations of Internal ControlThe costs of internal controls must not exceed their benefits.C18NEED-TO-KNOWIdentify the following phrases/terms as best linked with the (a) purposes of an internal control system,(b) principles of internal control, or (c) limitations of internal control.1)Protect assets2)Establish responsibilities3)Human error4)Maintain adequate records5)Apply technological controls6)Ensure reliable accounting7)Insure assets and bond key employees8)Human fraud9)Separate recordkeeping from custody of assets10)Divide responsibility for related transactions11)Cost-benefit principle12)Promote efficient operations13)Perform regular and independent reviews14)Urge adherence to company policiesC19NEED-TO-KNOWa)Purposes of internal controlsProtect assets.Promote efficient operations.Ensure reliable accounting.Urge adherence to company policies.1)Protect assetsa) Purpose of internal controls2)Establish responsibilities3)Human error4)Maintain adequate records5)Apply technological controls6)Ensure reliable accountinga) Purpose of internal controls7)Insure assets and bond key employees8)Human fraud9)Separate recordkeeping from custody of assets10)Divide responsibility for related transactions11)Cost-benefit principle12)Promote efficient operationsa) Purpose of internal controls13)Perform regular and independent reviews14)Urge adherence to company policiesa) Purpose of internal controlsC110NEED-TO-KNOWa)Purposes of internal controlsProtect assets.Promote efficient operations.Ensure reliable accounting.Urge adherence to company policies.b)Principles of internal controlsEstablish responsibilities.Maintain adequate records.Insure assets and bond key employees.Separate recordkeeping from custody of assets.Divide responsibility for related transactions.Apply technological controls.Perform regular and independent reviews.1)Protect assetsa) Purpose of internal controls2)Establish responsibilitiesb) Principles of internal controls3)Human error4)Maintain adequate recordsb) Principles of internal controls5)Apply technological controlsb) Principles of internal controls6)Ensure reliable accountinga) Purpose of internal controls7)Insure assets and bond key employeesb) Principles of internal controls8)Human fraud9)Separate recordkeeping from custody of assetsb) Principles of internal controls10)Divide responsibility for related transactionsb) Principles of internal controls11)Cost-benefit principle12)Promote efficient operationsa) Purpose of internal controls13)Perform regular and independent reviewsb) Principles of internal controls14)Urge adherence to company policiesa) Purpose of internal controlsC111NEED-TO-KNOWa)Purposes of internal controlsc)Limitations of internal controlsProtect assets.Human elements include:Promote efficient operations.Human error.Ensure reliable accounting.Human fraud.Urge adherence to company policies.Cost-benefit principle.b)Principles of internal controlsEstablish responsibilities.Maintain adequate records.Insure assets and bond key employees.Separate recordkeeping from custody of assets.Divide responsibility for related transactions.Apply technological controls.Perform regular and independent reviews.1)Protect assetsa) Purpose of internal controls2)Establish responsibilitiesb) Principles of internal controls3)Human errorc) Limitations of internal controls4)Maintain adequate recordsb) Principles of internal controls5)Apply technological controlsb) Principles of internal controls6)Ensure reliable accountinga) Purpose of internal controls7)Insure assets and bond key employeesb) Principles of internal controls8)Human fraudc) Limitations of internal controls9)Separate recordkeeping from custody of assetsb) Principles of internal controls10)Divide responsibility for related transactionsb) Principles of internal controls11)Cost-benefit principlec) Limitations of internal controls12)Promote efficient operationsa) Purpose of internal controls13)Perform regular and independent reviewsb) Principles of internal controls14)Urge adherence to company policiesa) Purpose of internal controlsC112 08-C2: Cash, Cash Equivalents, and Liquidity 13Control of CashAn effective system of internal control that protects cash and cash equivalents should meet three basic guidelines:Handling cash is separated from recordkeeping for cash.Cash disbursements are made by check.C2Cash receipts are promptly deposited in a bank.14Cash, Cash Equivalents, and LiquidityCash Currency, coins, and amounts on deposit in bank accounts, checking accounts, and some savings accounts. Also includes items such as customer checks, cashier checks, certified checks, and money orders.Cash EquivalentsShort-term, highly liquid investments that are:Readily convertible to a known cash amount.Close to maturity date and not sensitive to interest rate changes.C2Cash and similar assets are called liquid assets because they can be readily used to settle such obligations.15Cash ManagementThe goals of cash management are twofold:Plan cash receipts to meet cash payments when due.Keep a minimum level of cash necessary to operate.Effective cash management involves applying the following cash management principles: Encourage collection of receivables. Delay payment of liabilities. Keep only necessary levels of assets. Plan expenditures. Invest excess cash.C216 08-P1: Control of Cash Receipts 17Over-the-Counter Cash ReceiptsP1This graphic illustrates that none of the people involved can make a mistake or divert cash without the difference being revealed. 18Cash Over and ShortSometimes errors in making change are discovered from differences between the cash in the cash register and the record of the amount of cash receipts. P1If a cash register’s record shows $550 but the count of cash in the register is $555, we would prepare the following journal entry:19Cash Over and ShortSometimes errors in making change are discovered from differences between the cash in the cash register and the record of the amount of cash receipts. P1On the other hand, if a cash register’s record shows $625 but the count of cash in the register is$621, the entry to record cash sales and its shortage is:20Cash Receipts by MailP1Preferably, two people are assigned the task of opening the mail. The cashier deposits the money in a bank. The recordkeeper records the amounts received in the accounting records.21Control of Cash DisbursementsKeys to Controlling Cash DisbursementsRequire all expenditures to be made by check.Limit access to checks except for those who have the authority to sign checks.P1Control of cash disbursements is especially important as most large thefts occur from payment of fictitious invoices.22Voucher System of Control A voucher system establishes procedures for:Verifying, approving, and recording obligations for eventual cash disbursements.Issuing checks for payment of verified, approved, and recorded obligations.P123Voucher System of ControlP124NEED-TO-KNOWA good system of internal control for cash provides adequate procedures for protecting both cash receiptsand cash disbursements. Which of the following statements are true regarding the control of cash receiptsand disbursements?1. Over-the-counter cash receipts from sales should be recorded on a cash register at the time ofeach sale.True – All sales should be recorded on a cash register.2. Custody over cash should be separate from the recordkeeping of cash.True – Segregation of duties3. For control of cash receipts that arrive through the mail, two people should be assigned the taskof, and be present for, opening that mail.True – Segregation of duties4. One key to controlling cash disbursements is to require that no expenditures be made by check;instead, all expenditures should be made from petty cash.False – Only small amounts should be paid from petty cash.5. A voucher system of control should be applied only to purchases of inventory and never to otherexpenditures.False – A voucher system should be applied to all purchases. P125 08-P2: Control of Cash Disbursements 26Petty Cash System of ControlSmall payments required in most companies for items such as postage, courier fees, repairs, and supplies.P227Operating a Petty Cash FundP228Operating a Petty Cash FundP229Operating a Petty Cash FundP230NEED-TO-KNOWBacardi Company established a $150 petty cash fund with Eminem as the petty cashier. When the fundbalance reached $19 cash, Eminem prepared a petty cash payment report, which follows.Receipt No.Approved byReceived by12Delivery Expense$29EminemA. Smirnoff13Merchandise Inventory18EminemJ. Daniels15(Omitted)32EminemC. Carlsberg16Miscellaneous Expense41(Omitted)J. WalkerTotal$120Required:1.Identify four internal control weaknesses from the payment report.Account ChargedThe petty cashier did not sign petty cash receipt no. 16. Was the expense approved, or was this an oversight?Petty cash receipt no. 15 does not indicate the account to be charged. If possible, management should determine the correct account; if impossible, Miscellaneous Expense should be charged.Petty cash ticket no. 14 is missing. All petty cash tickets should be pre-numbered and all numbers should be accounted for.Since total cash on hand is only $19, $131 has been withdrawn ($150 - $19). Only $120 in expenditures has been documented. Management should investigate the $11 cash shortage.P231NEED-TO-KNOWBacardi Company established a $150 petty cash fund with Eminem as the petty cashier. When the fundbalance reached $19 cash, Eminem prepared a petty cash payment report, which follows.Receipt No.Approved byReceived by12Delivery Expense$29EminemA. Smirnoff13Merchandise Inventory18EminemJ. Daniels15(Omitted)32EminemC. Carlsberg16Miscellaneous Expense41(Omitted)J. WalkerTotal$120Account Charged2.DateDebitCreditEstablishPetty cash150Cash150ReimburseDelivery expense29Merchandise inventory18Miscellaneous expense73Cash short and over11Cash ($150 - $19)131Prepare general journal entries to record the establishment of the fund and the reimbursement of the fund. (Assume that management was unable to verify the account number for receipt no. 15.)General JournalP232NEED-TO-KNOWBacardi Company established a $150 petty cash fund with Eminem as the petty cashier. When the fundbalance reached $19 cash, Eminem prepared a petty cash payment report, which follows.Receipt No.Approved byReceived by12Delivery Expense$29EminemA. Smirnoff13Merchandise Inventory18EminemJ. Daniels15(Omitted)32EminemC. Carlsberg16Miscellaneous Expense41(Omitted)J. WalkerTotal$120Account Charged3.What is the Petty Cash account balance immediately before reimbursement?$150Immediately after reimbursement?$150The balance in Petty cash remains constant unless the amount of the fund is changed.P233Basic Bank ServicesBank AccountsSignature CardsDeposit TicketsChecksElectronic Funds TransferBank StatementsP234Bank StatementUsually once a month, the bank sends each depositor a bank statement showing the activity in the account.P235 08-P3: Bank Reconciliation 36Bank ReconciliationA bank reconciliation is prepared periodically to explain the difference between cash reported on the bank statement and the cash balance on company’s books.P337Bank ReconciliationThe balance of a checking account reported on the bank statement rarely equals the balance in the depositor’s accounting records. Cash Balance per Bank+ Deposits in Transit- Outstanding Checks+/- ErrorsAdjusted Cash BalanceCash Balance per Book+ Collections & Interest- Uncollectible items+/- ErrorsAdjusted Cash BalanceAdjusting entries are recorded for the reconciling items on the book side of the reconciliation. =P338Bank ReconciliationP3Cash Balance per Bank+ Deposits in Transit- Outstanding Checks+/- ErrorsAdjusted Cash BalanceWe follow nine steps in preparing the bank reconciliation. 39Bank ReconciliationP3We follow nine steps in preparing the bank reconciliation. Cash Balance per Book+ Collections & Interest- Uncollectible items+/- ErrorsAdjusted Cash Balance40Bank ReconciliationP3We follow nine steps in preparing the bank reconciliation. Adjusting entries are recorded for the reconciling items on the book side of the reconciliation. 41Bank ReconciliationP3Only the items reconciling the book balance require adjustment. 42NEED-TO-KNOWThe following information is available to reconcile Gucci’s book balance of cash with its bank statementcash balance as of December 31. Prepare the bank reconciliation for this company as of December 31.a.The December 31 cash balance according to the accounting records is $1,610, and the bank statementcash balance for that date is $1,900.b.Gucci’s December 31 daily cash receipts of $800 were placed in the bank’s night depository onDecember 31, but do not appear on the December 31 bank statement.c.Check No. 6273 for $400 and Check No. 6282 for $100, both written and entered in the accountingrecords in December, are not among the canceled checks. Two checks, No. 6231 for $2,000 and No.6242 for $200, were outstanding on the most recent November 30 reconciliation. Check No. 6231 islisted with the December canceled checks, but Check No. 6242 is not.d.When the December checks are compared with entries in the accounting records, it is found that CheckNo. 6267 had been correctly drawn for $340 to pay for office supplies but was erroneously entered inthe accounting records as $430.e.A credit memorandum indicates that the bank collected $500 cash on a note receivable for thecompany, deducted a $30 collection fee, and credited the balance to the company’s Cash account. Gucci had not recorded this transaction before receiving the statement.f.Two debit memoranda are enclosed with the statement and are unrecorded at the time of the reconciliation.One debit memorandum is for $150 and dealt with an NSF check for $140 received from a customer,Prada Inc., in payment of its account. The bank assessed a $10 fee for processing it. The seconddebit memorandum is a $20 charge for check printing. Gucci had not recorded these transactionsbefore receiving the statement.P343NEED-TO-KNOWBank statement balanceBook balanceAdjusted bank balanceAdjusted book balanceGucciBank ReconciliationDecember 31Add: Items already added to the book balance that have not yet been added to the bank balance.Deduct: Items already subtracted from the book balance that have not yet been subtracted from the bank balance.Add: Items already added to the bank balance that have not yet been added to the book balance.Deduct: Items already subtracted from the bank balance that have not yet been subtracted from the book balance.In the case of an error, whichever party made the error (book or bank) will show the correction as an adjustment.P344NEED-TO-KNOWa.The December 31 cash balance according to the accounting records is $1,610, and the bank statementcash balance for that date is $1,900.b.Gucci’s December 31 daily cash receipts of $800 were placed in the bank’s night depository onDecember 31, but do not appear on the December 31 bank statement.c.Check No. 6273 for $400 and Check No. 6282 for $100, both written and entered in the accountingrecords in December, are not among the canceled checks. Two checks, No. 6231 for $2,000 and No.6242 for $200, were outstanding on the most recent November 30 reconciliation. Check No. 6231 islisted with the December canceled checks, but Check No. 6242 is not.Bank statement balance$1,900Book balance$1,610Add:Add:Deposit of December 31800Deduct:Checks No.6273$400Deduct:62821006242200Adjusted bank balanceAdjusted book balanceGucciBank ReconciliationDecember 31P345NEED-TO-KNOWd.When the December checks are compared with entries in the accounting records, it is found that CheckNo. 6267 had been correctly drawn for $340 to pay for office supplies but was erroneously entered inthe accounting records as $430.e.A credit memorandum indicates that the bank collected $500 cash on a note receivable for thecompany, deducted a $30 collection fee, and credited the balance to the company’s Cash account. Gucci had not recorded this transaction before receiving the statement.f.Two debit memoranda are enclosed with the statement and are unrecorded at the time of the reconciliation.One debit memorandum is for $150 and dealt with an NSF check for $140 received from a customer,Prada Inc., in payment of its account. The bank assessed a $10 fee for processing it. The seconddebit memorandum is a $20 charge for check printing. Gucci had not recorded these transactionsbefore receiving the statement.Bank statement balance$1,900Book balance$1,610Add:Add:Deposit of December 31800Error (Ck 6267)$902,700Proceeds of note less $30 fee470560Deduct:2,170Checks No.6273$400Deduct:6282100NSF check$1506242200700Printing fee20170Adjusted bank balance$2,000Adjusted book balance$2,000GucciBank ReconciliationDecember 31P346NEED-TO-KNOWBank statement balance$1,900Book balance$1,610Add:Add:Deposit of December 31800Error (Ck 6267)$902,700Proceeds of note less $30 fee470560Deduct:2,170Checks No.6273$400Deduct:6282100NSF check$1506242200700Printing fee20170Adjusted bank balance$2,000Adjusted book balance$2,000GucciBank ReconciliationDecember 31DateDebitCreditDec. 31Cash90Office supplies90Dec. 31Cash470Collection expense30Notes receivable500Dec. 31Accounts receivable - Prada Inc.150Cash150Dec. 31Miscellaneous expenses20Cash20General JournalP347Global ViewControl of CashAccounting definitions for cash are similar for U.S. GAAP and IFRS. Banking Activities as ControlsThere is a global demand for banking services, bank statements, and bank reconciliations. To the extent feasible, companies utilize banking services as part of their effective control procedures. Internal Control Purposes, Principles, and ProceduresThe purposes and principles of internal control systems are fundamentally the same across the globe. 48 08-A1: Days’ Sales Uncollected 49Days’ Sales UncollectedDays’salesuncollected Accounts receivable Net sales× 365=Indicates how much time is likely to pass beforewe receive cash receipts from credit sales.A150 08-P4: Documentation and Verification 51Appendix 8A: Documentation and VerificationP4Receiving ReportPurchase RequisitionPurchase OrderInvoice52 08-P5: Control of Purchase Discounts 53Appendix 8B: Control of Purchase DiscountsP5The net method gives management an advantage in controlling and monitoring cash payments involving purchase discounts. When purchases are recorded at net amounts, a Discounts Lost expense account is recorded and brought to management’s attention.54End of Chapter 855