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Week 7 Notes- Chapter 7: Reporting Cash

by: Khaylian Leflore

Week 7 Notes- Chapter 7: Reporting Cash Accy 206

Marketplace > Northern Illinois University > Accounting > Accy 206 > Week 7 Notes Chapter 7 Reporting Cash
Khaylian Leflore
GPA 3.0
Introduction to Financial Accounting
Mark Hogan

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About this Document

6 pages of in depth notes regarding cash, cash equivalents, and internal controls. Figure out the difference between "balance per books" and "balance per bank", and learn about fraud!
Introduction to Financial Accounting
Mark Hogan
Class Notes
ACCY 206 Accounting chapter 7 reporting cash equivalents restricted cash internal controls fraud
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This 6 page Class Notes was uploaded by Khaylian Leflore on Monday October 19, 2015. The Class Notes belongs to Accy 206 at Northern Illinois University taught by Mark Hogan in Fall 2015. Since its upload, it has received 16 views. For similar materials see Introduction to Financial Accounting in Accounting at Northern Illinois University.

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Date Created: 10/19/15
Week 7 Notes Chapter 7 Reporting Cash Reporting Cash gt Cash currency and checks received savings and checking accounts gt Cash equivalents short term less than 90 days highly liquid investments that are 1 Readily convertible to known amounts of cash 2 So near their maturity that their market value is relatively insensitive to changes on interest rates gt Restricted cash not available for general use 0 Cash restricted because it is to be paid out as a result of investor law suits 0 To be reported separately may be current or noncurrent asset gt Cash can be combined with cash equivalents gt Restricted cash funds cannot be combined with cash gt Cash is listed first in the current assets section 9 most liquid goes first Electronic Funds Transfer EFT System gt Disbursement system that uses Wire telephone or computers to transfer cash balances between locations gt Normally result in better internal control since no cash or checks are handled by company employees Managing and Monitoring Cash gt Basic principles of cash management 1 Increase the speed of receivables collection 2 Keep inventory low 3 Monitor payment of liabilities 4 Plan timing of major expenditures 5 Invest idle cash Control Features Use of a Bank gt The use of a bank contributes to good internal control over cash 0 Minimizes the amount of currency on hand 0 Creates a double record of bank transactions both the bank and the company have a record 0 The company s balance per books can be reconciled to the balance per bank 9 an external party that has their own system of internal control gt Bank statement 0 Debit memo bank service charge NSF nonsufficient funds 0 Credit memo collect notes receivable interest earned Bank Reconciliation gt Reconciling the bank account 0 Reconcile balance per books and balance per bank to their correct or true balance 0 Reconciling items deposits in transit outstanding checks bank memoranda and errors 0 m deposit recorded by the company but not yet by the bank 0 08 check check issued by the company therefore is already subtracted from cash balance per books but has not yet cleared been paid by the bank 0 Bank memo not yet recorded by company gt Reconciliation procedures 0 per bank statement Adjustment to the bank balance deposit in transit outstanding checks bank errors Correct balance adjusted balance per bank 0 per books Adjustments to the book balance notes collected by bank NSF checks Check printing or other serVice charges company errors Correct balance adjusted balance per books gt The reconciling item in a bank reconciliation that Will result in a adjusting entry by the depositor is bank serVice charges Fraud gt Dishonest act by an employee that results in personal benefit to the employee at a cost to the employer gt An irregularity gt Includes asset misappropriations financial reporting fraud gt Triangle opportunity rationalization financial pressure Fraud and Internal Control gt SOX o Applies to publically traded US corporations 0 Created PCAOB to 1 Create auditing standards 2 Inspect accounting firms that audit public companies 0 Companies required to maintain a system of internal control Corporate execs and board of directors must ensure that these controls are reliable and effective and report on them 0 Independent outside auditors must attest to the adequacy of the internal control system Internal Control gt Methods and measures adopted to 1 Safe guard assets 2 Enhance accuracy and reliability of accounting records 3 Increase efficiency of operations 4 Ensure compliance with laws and regulations gt 5 primary components 1 Control environment 2 Risk assessment 3 Control activities 4 Info amp communications 5 Monitoring gt 6 principles of internal control activities 1 Establishment of responsibility 0 Control is most effective when only 1 person is responsible for a given task 0 Establishing responsibility often requires limiting access to only authorized personnel and then identifying those personnel 2 Segregation of duties SOD 0 Different individuals should be responsible for related activities 0 The responsibility for record keeping for an asset should be separate from the physical custody of an asset 0 CARV custody authorization record keeping verification 3 Documentation process 0 Companies should use prenumbered documents and all documents should be accounted for 0 Employees should promptly forward source documents for accounting entries to the accounting department 4 Physical controls 5 Independent internal verification including reconciliations 0 Records periodically verified by an employee who is independent 0 Discrepancies reported to management 6 Human I GSOUI CG control 0 Bond employees who handle cash 0 Relate employees duties and require vacations 0 Conduct background checks gt Limitations of internal control Costs should not exceed benefit Human element errors Size of business Collusion Cash Controls gt Cash receipt controls 0 6 principles of internal controls included 0 Overthecounter receipts important internal principle segregation of record keeping from physical custody 0 Mail receipts should be opened by 2 people a list prepared and each check endorsed for deposit only Each mail clerk signs the list to establish responsibility for the data Original copy of the list along with checks sent to the cashier s department Copy of the list is sent to the accounting department for recording Clerks also keep a copy gt Cash disbursement controls 0 6 principles of internal control included 0 Purchase order receiving report vendor invoice 3way match


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