Chapter 5 and begining of chapter 6
Chapter 5 and begining of chapter 6 MKT 3020
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This 7 page Class Notes was uploaded by Annie Danyluk on Monday October 12, 2015. The Class Notes belongs to MKT 3020 at Clemson University taught by Professor Jennifer D. Siemens in Fall 2015. Since its upload, it has received 28 views. For similar materials see Consumer Behavior in Marketing at Clemson University.
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Date Created: 10/12/15
Chapter 5 fraud internal control cash 09212015 Explain common principles and limitations of internal control Internal controls 0 The process by which a company provides reasonable assurance regarding the nancial reporting the effectiveness and efficiency of its operations and its compliance with applicable laws and regulations 0 Done by entire company Principles of control activities 0 1 Establish responsibility 0 Assign each task to only one employee 0 Example Give a separate cash register drawer to each cashier at the beginning of a shift 0 2 Segregate duties 0 Do not make one employee responsible for all parts of a process 0 Example inventory buyers do not also approve payments to suppliers 0 Example person who prepares the checks should be different than the person who is signing the checks 0 3 Restrict access 0 do not provide access to assets or information unless it is needed to ful ll assigned responsibilities 0 Example secure valuable assets such as cash and restrict access to computer systems via passwords rewalls 4 Document procedures 0 prepare documents to show activities that have occurred 0 examples pay suppliers using prenumbered checks and digitally documented electronic fund transfers 0 5 Independently verify 0 Check others work 0 Compare the cash balance in the company s accounting records to the cash balance reported by the bank and account for any difference Control limitations 0 Internal controls can never completely prevent and detect errors and fraud for two reasons 0 Bene ts must exceed the cost Would you go to target if you had to be patted down every time you left bene ts don t exceed costs 0 Human error or fraud lnternal control for cash 0 Internal controls for cash are important because the volume of cash transactions is enormous and because cash is valuable and portable and therefore poses a high risk of theft Controls for cash receipts Businesses can receive cash in two different ways 0 Receive cash in person at time of sale More risk because of human error 0 Receive cash through electronic transfer Less risk 0 The primary internal control goals for cash receipts is to ensure that businesses receive the appropriate amount of cash and safely deposits it in the bank Cash received from a remote source 0 Only error would be that they don t type in the right numbers Controls for cash payments 0 Most cash payments involve writing a check or completing and electronic funds transfer EFT In rare cases where a company pays for purchases with dollar bills and coins it uses a petty cash system 0 The primary goal of internal controls for all cash payments is to ensure that the business pays only for properly authorized transactions Cash paid to employees via Electronic funds transfer 0 Most companies pay cash to their employees through EFTs which are known by employees as direct deposits 0 To reduce the risk of the bank accidentally overpaying or underpaying an employee many companies use an imprest system Cash paid to reimburse employees Petty cash 0 A petty cash system is used to reimburse employees for small expenditures they have made on behalf of the organization Put money into the fund Pay money out of the fund Replenish the fund 0 Put money into the fund O 0 Petty cash increase Asset Cash decrease Pay money out of the fund 0 O No journal entries occur at this stage You would just have the receipts o Replenish the fund 0 O O O Supplies increase assets Travel expense increase SE Office expense increase SE Cash decrease assets 092 52015 Operating cycles Service companies 0 Sell service 0 Collect cash 0 Pay operating expense Merchandising companies 0 Buy inventory 0 Sell inventory 0 Collect cash 0 Pay operating expense Manufacturing Inventory systems Three accounts are particularly important to a merchandiser Inventory 0 The merchandiser s total cost of acquiring goods that it has not yet sold Sales revenue 0 Total selling price of all goods that the merchandiser did sell to customers Cost of goods sold 0 Total cost of all goods that the merchandiser did sell to customers Sales revenuecost of goods soldGross pro t Inventory systems Cost of goods sold equation 0 Beginning inventory 0 Add purchases Goods available for saeall the inventory we can sell 0 Cost of goods sold 0 End inventory want inventory to be as low as possible Periodic inventory systems 0 BlPECGS Updates only at the end of accounting period Perpetual inventory system 0 Updated perpetually Often combined with bar codes and optical scanners Periodic inventory system 0 No up to date records Cant estimate shrinkage Perpetual inventory system 0 Continuous tracking 0 Can estimate shrinkage Still required to count your inventory it is just less times per year Cost of inventory includes 0 Purchase price 0 Add transportation charges Only if we pay for it o Decrease Purchase returns and allowances o Decrease purchase discount 0 Cost of inventory Purchase discounts A purchase discount is a price discount given to customers for prompt payment of their account balance 0 Discount percentage offerednumber of days in a discount period n is the net sale maximum credit period Chapter 5 acct part two 09232015 Banks provide important services that help businesses to control cash in several ways Restricting access Documenting procedures Independently verifying Bank Reconciliation goals 0 Identify the Deposit in transit o Tend to increase their checking accounts 0 Identify Outstanding checks 0 Checks that have not cleared yet 0 Record other transactions on the bank statement and correct your errors Bank Recon Timing errors 0 The bank doesn t know 0 Outstanding checks DEDUCT Adjusted on the bank side 0 Deposit in transit ADD Has not cleared the bank yet 0 Any type of bank errors DEDUCT OR ADD 0 Company doesn t know about 0 Bank charges and collections DEDUCT charges ADD coHchons EFTs that we don t know about Service charge 0 NSF check DEDUCT Non Suf cient Funds Checks checks that bounce 0 Any type of company errors WE DO JOURNAL ENTRIES ONLY FOR THE BOOK SIDE Bank reconciliation 0 We must prepare journal entries to adjust the book balance to adjust book balance 0 Only amounts shown on the book portion of the reconciliation require an adjusting entry 0 ALLjOURNAL ENTRIES WILL INVOLVE CASH CR or DR Reporting cash and cash equivalents Cash includes money or any instrument that banks will accept for deposit and immediate credit to a company s account such as a check money order or bank draft 0 Cash equivalents are shortterm highly liquid investments purchased within three months of maturity SHOW CASH AND CASH EQUIVALENTS and RESTRICTED CASH SEPARATELY ON THE BALANCE SHEET
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