Chapter 21-1. Chapter 21-2 CHAPTER 21 PROCESS COST ACCOUNTING Accounting Principles, Eighth Edition.
Chapter 8-1 CHAPTER 8 INTERNAL CONTROL AND CASH Accounting Principles, Eighth Edition.
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Transcript of Chapter 8-1 CHAPTER 8 INTERNAL CONTROL AND CASH Accounting Principles, Eighth Edition.
Chapter 8-1
CHAPTER CHAPTER 88
INTERNAL INTERNAL CONTROLCONTROLAND CASHAND CASH
Accounting Principles, Eighth Edition
Chapter 8-2
Internal ControlInternal ControlInternal ControlInternal Control
LO 2 Identify the principles of internal control.LO 2 Identify the principles of internal control.
Principles of Internal ControlPrinciples of Internal Control
PHYSICAL, MECHANICAL, AND ELECTRONIC CONTROLS
Physical
Mechanical and
Electronic
Illustration 8-3
Chapter 8-3
Internal ControlInternal ControlInternal ControlInternal Control
Principles of Internal ControlPrinciples of Internal Control
INDEPENDENT INTERNAL VERIFICATION
1. Records periodically verified by an employee who is independent.
2. Discrepancies reported to management.
OTHER CONTROLS
1. Bond employees.
2. Rotate employees’ duties and require vacations.
Chapter 8-4
Internal ControlInternal ControlInternal ControlInternal Control
LO 2 Identify the principles of internal control.LO 2 Identify the principles of internal control.
Limitations of Internal ControlLimitations of Internal Control
Costs should not exceed benefit.
Human element.
Size of the business.
Chapter 8-5
Cash ControlsCash ControlsCash ControlsCash Controls
Internal Control over Cash Internal Control over Cash ReceiptsReceipts
LO 3 Explain the applications of internal control principles to cash LO 3 Explain the applications of internal control principles to cash receipts.receipts.
Independent Internal
Verification
Supervisors count cash receipts daily; treasurer compares
total receipts to bank deposits daily
Establishment of Responsibility
Only designated personnel are
authorized to handle cash receipts
(cashiers)
Segregation of Duties
Different individuals receive cash, record cash receipts, and
hold the cash
Documentation Procedures
Use remittance advice (mail
receipts), cash register tapes, and
deposit slips
Physical, Mechanical, and
Electronic Controls
Store cash in safes and bank vaults; limit access to
storage areas; use cash registers
Other Controls
Bond personnel who handle cash; require employees to take
vacations; deposit all cash in bank daily
Illustration 8-5
Chapter 8-6
Cash ControlsCash ControlsCash ControlsCash Controls
Cash consists of coins, currency, checks, money orders, and money on hand or on deposit in a bank.
Cash receipts come from:
cash sales
collections on account from customers
receipt of interest, rent, and dividends
investments by owners
bank loans
proceeds from the sale of noncurrent assetsLO 3 Explain the applications of internal control principles to cash LO 3 Explain the applications of internal control principles to cash
receipts.receipts.
Chapter 8-7
Cashier ring up sales
Supervisor
1. reads register totals
2. makes cash counts
3. prepares cash count sheets
Over-the-Counter ReceiptsOver-the-Counter ReceiptsOver-the-Counter ReceiptsOver-the-Counter Receipts
See page 347 & 348See page 347 & 348
Prepare daily summary
Prepare deposit slip
Cashier’s Department
Sales Department
Bank(deposit)
Treasurer(verification)
Accounting
(record)
Illustration 8-7
Chapter 8-8
Permitting only designated personnel to handle cash receipts
is an application of the principle of:
a. segregation of duties.
b. establishment of responsibility.
c. independent check.
d. other controls.
Review QuestionReview Question
Cash ControlsCash ControlsCash ControlsCash Controls
LO 3 Explain the applications of internal control principles to cash LO 3 Explain the applications of internal control principles to cash receipts.receipts.
Chapter 8-9
Generally, internal control over cash disbursements is more effective when companies pay by check, rather than by cash.
Applications:
Voucher system
Electronic funds transfers (EFT) system
Petty cash fund
Cash ControlsCash ControlsCash ControlsCash Controls
LO 4 Explain the applications of internal LO 4 Explain the applications of internal control principles to cash control principles to cash disbursements.disbursements.
Internal Control over Cash Internal Control over Cash DisbursementsDisbursements
Chapter 8-10
Cash ControlsCash ControlsCash ControlsCash Controls
Internal Control over Cash Internal Control over Cash DisbursementsDisbursements Independent
Internal Verification
Compare checks to invoices; reconcile
bank statement monthly
Establishment of Responsibility
Only designated personnel are
authorized to sign checks (treasurer)
Segregation of Duties
Different individuals approve and make payments; check
signers do not record disbursements
Documentation Procedures
Use prenumbered checks and account
for them in sequence; each
check must have an approved
invoice
Physical, Mechanical, and
Electronic Controls
Store blank checks in safes, with limited access; print check
amounts by machine in indelible ink
Other Controls
Stamp invoices
PAID
Illustration 8-8
See illustration 8-8 page 350See illustration 8-8 page 350
Chapter 8-11
The use of prenumbered checks in disbursing cash is an application of the principle of:
a. establishment of responsibility.
b. segregation of duties.
c. physical, mechanical, and electronic controls.
d. documentation procedures.
Review QuestionReview Question
Cash ControlsCash ControlsCash ControlsCash Controls
LO 4 Explain the applications of internal LO 4 Explain the applications of internal control principles to cash control principles to cash disbursements.disbursements.
Chapter 8-12
Voucher System
Network of approvals, by authorized individuals, to ensure all disbursements by check are proper.
A voucher is an authorization form prepared for each expenditure.
Cash ControlsCash ControlsCash ControlsCash Controls
Internal Control over Cash Internal Control over Cash DisbursementsDisbursements
LO 4 Explain the applications of internal LO 4 Explain the applications of internal control principles to cash control principles to cash disbursements.disbursements.
Chapter 8-13
Electronic Funds Transfers (EFT)
Disbursement systems that uses wire, telephone, or computers to transfer cash balances between locations.
Cash ControlsCash ControlsCash ControlsCash Controls
Internal Control over Cash Internal Control over Cash DisbursementsDisbursements
LO 4 Explain the applications of internal LO 4 Explain the applications of internal control principles to cash control principles to cash disbursements.disbursements.
Chapter 8-14
Petty Cash Fund - Used to pay small amounts.
Involves:
1. establishing the fund,
2. making payments from the fund, and
3. replenishing the fund.
Cash ControlsCash ControlsCash ControlsCash Controls
Internal Control over Cash Internal Control over Cash DisbursementsDisbursements
LO 5 Describe the operation of a petty cash fund.LO 5 Describe the operation of a petty cash fund.