07 ohp slides 1

Cash

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CASH

Internal Control

a. Safeguard assets

b. Ensure accurate and reliable accounting

records

c. Promote operational efficiency

d. Encourage adherence to company policies

Internal Control

Administrative

Control vs. Accounting

Control

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Effective Systems of Internal Control

1. Competent and reliable personnel

2. Assignment of responsibilities

3. Proper authorization

4. Separation of duties

5. Internal and external audits

6. Documents and records

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The Bank Account as a Control Device

Cash

Items recorded by the company but not

yet recorded by the bank.

o Signature Card

o Deposit Ticket

o Check

o Bank Statement

o Bank Reconciliation

• Deposits in transit

• Outstanding Checks

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The Bank Account as a Control Device

Items recorded by the bank but not yet

recorded by the company.

Errors

• Bank Collections

• Service Charge

• Interest Revenue on Checking Account

• NSF Checks

• Checks collected, deposited & returned

to payee

• The cost of printed checks

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Steps in Preparing a Bank Reconciliation

1. Start with two figures: the bank statement

balance and the balance in the company’s

Cash account.

2. Add to, or subtract from, the bank balance

those items that appear on the books but not

on the bank statement.

3. Add to, or subtract from, the book balance

those items that appear on the bank

statement but not on the company books.

4. Compute the adjusted bank and book balance.

5. Journalize each item in step 3

6. Correct all book errors.

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Feb. 1 Balance 41,950 Feb. 3 Balance 4,000

6 CR 14 8,000 12 CR 14 31,000

15 CR 15 18,000 19 CR 15 11,000

23 CR 15 9,000 25 CR 15 5,000

28 CR 15 24,000 27 CR 15 9,000

Feb. 28 Balance 40,950

Cash

Sample Problem:

Beginning balance ………………………………….………………….. P 41,950

Deposits:

Feb. 7 ………………………………………………… P 8,000

Feb. 15 ……………………………………………….. 18,000

Feb. 24 ……………………………………………….. 9,000 35,000

Less: Checks (total per day):

Feb. 8 ………………………………………………… P (4,000)

Feb. 16 ……………………………………………….. (31,000)

Feb. 23 ……………………………………………….. (11,000) (46,000)

Other items:

Service charge ……………………………………………………… (100)

NSF check from N. F. King ………………………………………. (7,000)

Bank collection of note receivable for the company* …………… 10,000

Interest on account balance ………………………………………. 150

Ending balance ……………………………………………………….. P 34,000

*Includes interest of P1,190.

Bank Statement for February 28, 2005

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Bank:

Balance, Februry 28, 2005 …………………………… P 34,000

Add: Deposit of February 28 in transit ……………… 24,000

P 58,000

Less: Outstanding Checks issued on Feb. 25 & 27.. 14,000

Adjusted bank balance, February 28, 2005 ………… 44,000

Books:

Balance, February 28, 2005 40,950

Add: Bank collection of note receivable, including

interest of P 1,190………………………………………10,000

Interest earned on bank balance ……………… 150

51,100

Less: Service Charge ………………………………… P (100)

NSF check (7,000) (7,100)

Adjusted book balance, February 28, 2005 ………… 44,000

Barn Company

Bank Reconciliation

February 28, 2005

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Internal Control Over Cash Receipts

Cash sales

Cash Short and Over

Mail

o Cash Register

o Fidelity bond

Cash ……………………………………………..xxx

Cash Short and Over ……………………..xxx

Sales revenue ……………………………………xxx

To record daily cash sales.

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Internal Control Over Cash Disbursements

Controlling the cost of inventory

Accounts payable…………………xxx

Purchase Discounts Lost……..xxx

Cash ………………………………………..xxx

Purchases………………………..……….xxx

Accounts payable …………………………xxx

Sales Revenue ………………………………… P 7,000,000

Cost of Goods Sold …………………………... 3,800,000

Gross Margin…………………………………… 3,200,000

Operating Expenses ………………………….. 2,300,000

Income from Operations ………………………. 900,000

Other revenue/expense:

Purchase discounts lost …………………. (20,000)

Net Income …………………………………….. P 880,000

Income Statement

For the year ended December 31, 2005

Garcia Marketing

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Petty Cash Disbursements

Controls over Petty Cash:

1. Designate an employee to administer the

fund as its custodian.

2. Keep a specific amount of cash on hand.

3. Support all fund disbursements with a

petty cash ticket

4. Replenish the fund

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Voucher System

The Voucher System uses:

1. Vouchers

2. Voucher Register

3. Unpaid Voucher file

4. Check Register

5. Paid Voucher File

Business

Document

Prepared By Sent To

Purchase request Sales

department

Purchasing

department

Purchase order Purchasing

department

Supplier or

vendor

Invoice Supplier or

vendor

Accounting

department

Receiving report Receiving

department

Accounting

department

Voucher Accounting

department

Officer who signs

the check

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Voucher System

The Voucher System:

The accounting department prepares a voucher.

Supporting documents are compared in the

accounting department.

Designated officials examine the supporting

documents and approve the voucher.

Accounting department enters the voucher

payable in the voucher register

Prior to invoice due date, a check is issued to

pay the voucher.

Accounting department enters the voucher in

the check register and update the voucher.

Paid vouchers are canceled and filed.

07 ohp slides 1

Business

Transcript of 07 ohp slides 1