Transcript Reporting and Analyzing Cash and Internal Controls

Chapter
ACCT 201
ACCT 201
6
Reporting and Analyzing
Cash and Internal
Controls
ACCT 201
UAA – ACCT 201
Principles of Financial Accounting
Dr. Fred Barbee
ACCT 201
Day #1
ACCT 201
ACCT 201
Chapter 6 - Day 1 - Agenda
Topic
LO
Read
HW
QS1,
QS3,
E1, E3,
P1A
E2, E4,
E10
Internal Control
C1, C2
250254
Control of Costs
C3,
P1, 2,
3, 4
254262
No Homework Due Today!
Chapter
ACCT 201
ACCT 201
6
Reporting and Analyzing
Cash and Internal
Controls
ACCT 201
Internal Control
ACCT 201
Internal Control – All Policies
and Procedures Used to . . .
ACCT 201
Protect assets.
Ensure reliable accounting.
Promote efficient operations.
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Urge adherence to company
policies.
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Principles of Internal Control
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Establish responsibilities.
Maintain adequate records.
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Insure assets and bond
employees.
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Principles of Internal Control
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Separate recordkeeping and
custody over assets
Divide responsibility for related
transactions.
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Principles of Internal Control
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Apply technological controls.
Perform regular and independent
reviews.
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Technology and Internal
Control
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Reduced
Processing
Errors
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Limited
Evidence of
Processing
More
Extensive Testing
of Records
Crucial
Separation of
Duties
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Limitations of Internal Control
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Human Error
Human Fraud
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Negligence
Fatigue
Misjudgment
Confusion
Intent to
defeat internal
controls for
personal gain
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Limitations of Internal Control
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The costs of internal controls
must not exceed their benefits.
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Benefits
Costs
Chapter
ACCT 201
ACCT 201
6
Reporting and Analyzing
Cash and Internal
Controls
ACCT 201
Control of Cash
ACCT 201
Cash, Cash Equivalents, and
Liquidity
ACCT 201
Cash
Currency, coins and amounts on
deposit in bank account, checking
accounts, and some savings
accounts.
ACCT 201
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Cash, Cash Equivalents, and
Liquidity
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Cash Equivalents are short-term,
highly liquid investments that are:
Readily convertible to a known cash
amount.
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Close to maturity date and not sensitive
to interest rate changes.
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Cash, Cash Equivalents, and
Liquidity
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Liquidity
How easily an asset can be converted
into another asset or be used in paying
for services or obligations.
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Inventory
Cash
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Control of Cash
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Segregate handling of cash from
recordkeeping of cash.
Cash receipts are promptly (daily)
deposited in a bank.
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Cash disbursements are made by
check.
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Control of Cash Receipts
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Over-the-Counter Cash Receipts
Cash register with locked-in record
of transactions.
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Compare cash register record with
cash reported.
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Control of Cash Receipts
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Cash Receipts By Mail
Two people open the mail.
Money to cashier’s office
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List to accounting dept.
Copy of list filed
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Control of Cash
Disbursements
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All expenditures made by check. The
only exception is for small payments
from petty cash.
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Separate authorization, check signing
and recordkeeping duties.
Apply a voucher system.
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A Voucher System of Control
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Establishes procedures for:
Accepting obligations resulting in cash
disbursements.
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Verifying, approving and recording
obligations.
Issuing checks for payment of verified,
approved and recorded obligations.
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A Voucher System of Control
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Establishes procedures for:
Requiring obligations be recorded when
incurred.
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Treating each purchase as an
independent transaction.
Voucher System of Control
Cashier’s Office
Accounting Dept.
Receiving Dept.
Supplier (Vendor)
Purchasing Dept.
Requesting Dept.
Check
Invoice Approval
Receiving Report
Invoice
Purchase Order
Purchase Requisition
Voucher
Supplier (Vendor)
Cashier’s Office
Accounting, Requesting,
Purchasing Depts.
Accounting Dept.
Supplier (Vendor)
Purchasing and
Accounting Depts.
Copy 2
Purchase Requisition
Purchasing
Copy 1
Purchase Requisition
Clothes Mart
No. 1167
Purchase Requisition
Clothes Mart
No. 1167
From: Shoe
Department
Clothes
Mart
No. 1167
To: Purchasing
From: Shoe Department
To: From:
Purchasing
Shoe Department
Request purchase of the following item(s):
To: Purchasing
Model No.
Description
Request
purchase of the following Quantity
item(s):
ABA32
- black
ModelSandals
No. Description
25
Quantity
Request purchase of the following item(s):
- black
25
C1287 ABA32
Sandals
- white
25
ModelSandals
No.
Description
Quantity
C1287 ABA32
Sandals
- whiteSandals
black
Reason for Request:
stock - white
C1287 Refill
Sandals
Reason for Request: Refill stock
Approved by: Reason
Andy Taylor
for Request: Refill stock
Approved by: Andy Taylor
Approved by: Andy Taylor
Requesting
Department
25
25
25
Accounting
One copy
of purchase
requisition
used to
prepare the
voucher.
Requesting Dept. Copy 3
Purchase Order
Accounting Copy 2
Clothes Mart Purchase Order No. M47 Vendor
Purchase Order
Nashville,
TN
Clothes
Mart
No. M47
To: Westcoast
Shoes
Purchase Order No. M47
Nashville,
TN
Clothes
Mart
35
PlaceShoes
To:Sunset
Westcoast
Nashville,
TN
Clothes
Mart
No. M47
San
Clemente,
90277
35 Sunset CA
Place
Copy 1
To: Westcoast Shoes
Nashville,
TN
San Clemente,
90277
35 SunsetCA
Place
Model No. DescriptionTo: Westcoast Shoes
Quantity Price
Amount
San Clemente, CA 90277
ABA32
Sandals
- black35 Sunset Place Quantity
25 $ 8.00
Model No.
Description
Price $ 200.00
Amount
90277
C1287
Sandals
-Description
white
ABA32
Sandals
- San
blackClemente, CA 25
25 8.00
$ 8.00
$ 200.00
Model
No.
Quantity
Price200.00
Amount
C1287
Sandals
- Description
white
25 25 8.00
ABA32
Sandals
- black
$ Price
8.00 200.00
$ 200.00
Model No.
Quantity
Amount
All shipments and invoices must include PO number
C1287
Sandals
- white
ABA32
Sandals
- black
All shipments and invoices must include PO number
C1287
Order by: B.T. Fife
Sandals - white
25 25 8.00
$ 8.00 200.00
$ 200.00
All shipments and invoices must include PO number
25
8.00
Order by: B.T. Fife
All shipments and invoices must include PO number
Order by: B.T. Fife
Order by: B.T. Fife
Retained in Purchasing
200.00
Clothes Mart
Nashville, Tennessee
Date: May 22, 2002
Pay to: Westcoast Shoes
City: San Clemente
Voucher No. 2718
State: CA
For the following:(attach all invoices and supporting documents)
Invoice Date Terms
05/18/02 2/10, n/30
05/28/02 2/10, n/30
Invoice No. and Details
Invoice 2718
Less discount
Net amount payable
Payment approval:
Bart Thurman
Auditor
Inside of a Voucher
Amount
$ 400.00
8.00
$ 392.00
Accounting Distribution
Account Debited
Merchandise inventory
Store supplies
Office supplies
Selling expense
General expene
Other:
Amount
392.00
Due date
Pay to: Westcoast Shoes
City: San Clemente
State: CA
Summary of charges:
Total charges
$ 400.00
Discount
8.00
Net payment
$ 392.00
Record of payment:
Voucher Payable Credit
392.00
Paid
Check No.
Outside of a Voucher
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Petty Cash System of Control
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Small payments required in most
companies for items such as
postage, courier fees, repairs and
supplies.
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Operating a Petty Cash Fund
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Petty Cashier
Treasurer and
Accountant
Petty Cashier
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GENERAL JOURNAL
Date
May
Description
1 Petty Cash
Cash
Page 4
PR Debit
Credit
400
400
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Operating a Petty Cash Fund
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Petty Cashier
Petty Cashier
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Operating a Petty Cash Fund
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Petty Cashier
Receipts
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34¢
Stamps
Petty Cashier
34¢
Courier
Stamps
Courier
Operating a Petty Cash Fund
Receipts
$125
Treasurer and
Accountant
To reimburse
petty cash fund
GENERAL JOURNAL
Date
Description
May 15 Postage Expense
Courier Expense
Cash
Page 4
PR Debit
Credit
45
80
125
Petty Cashier
We use a Cash
Over and Short
account if needed.
Petty Cash Example
Tension Co. maintains a petty cash fund of
$400. The following summary information was
taken from petty cash vouchers for July:
Travel Expenses
Customer Business Lunches
Express Mail Postage
Miscellaneous Office Supplies
$79.30
93.42
55.00
32.48
Let’s look at replenishing the fund if the
balance on July 31 was $137.80.
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Petty Cash Example
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What amount of cash will be
required to replenish the petty cash
fund?
a. $260.20
Desired Balance
$ 400.00
b. $262.20
Actual Balance
137.80
c. $139.80
Amount Needed
$ 262.20
d. $137.80
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Petty Cash Example
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The journal entry to replenish the
petty cash fund is:
GENERAL JOURNAL
Date
Jul
Description
31 Travel Expense
PR
Page 8
Debit
79.30
ACCT 201
Entertainment Expense
93.42
Postage Expense
55.00
Office Supplies Expense
32.48
Cash Over and Short
Cash
Credit
2.00
262.20
Chapter
ACCT 201
ACCT 201
6
Reporting and Analyzing
Cash and Internal
Controls
ACCT 201
Control of Purchases
Discounts
Control of Purchase Discounts
Previously we have recorded purchases of
Merchandise Inventory at the gross
amount. Discounts were not recognized
until payment was made.
GENERAL JOURNAL
Date
Description
May 10 Merchandise Inventory
Page 8
PR
Debit
Credit
1,000
Accounts Payable
1,000
Purcha se $1,000, subj ect to 2/10, n/30
May 19 Accounts Payable
Merchandise Inventory
Cash
1,000
20
980
Control of Purchase Discounts
As an alternative, we may record the
purchase net of any discount. We assume
that all discounts will be taken.
GENERAL JOURNAL
Date
Description
Page 8
PR Debit Credit
May 10 Merchandise Inventory
980
Accounts Payable
980
Purcha se $1,000, subj ect to 2/10, n/30
May 19 Accounts Payable
Cash
980
980
Control of Purchase Discounts
When we use the net method,
attention is drawn when available
discounts are not taken.
GENERAL JOURNAL
Date
May 10
Page 8
Discounts Lost is an
Merchandise Inventory
expense account and is included
Accounts Payable
on the income statement.
Purcha se $1,000, subj ect to 2/10, n/30
Description
May 21 Discounts Lost
Accounts Payable
PR
Debit
Credit
980
980
20
20