ACCC 203- Chapter 6
ACCC 203- Chapter 6 ACC 203
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This 5 page Class Notes was uploaded by Emely Curvelo on Monday November 2, 2015. The Class Notes belongs to ACC 203 at Pace University taught by John Paul in Summer 2015. Since its upload, it has received 19 views. For similar materials see Financial Accounting in Accounting at Pace University.
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Date Created: 11/02/15
Purpose of Internal Control Policies and procedures managers use to 1 Protect assets 2 Ensure reliable accounting 3 Promote ef cient operations 4 Urge adherence to company policies Principles of Internal Control 1 l ASH gt195 Establish responsibilities Maintain adequate records Insure assets and bond key employees Separate recording from custody of assets Divide responsibility for related transactions Apply technological controls Perform regular and independent reviews Technology and internal Control Reduced Processing Errors Limited Evidence of Processing Increased e commerce More Extensive Testing of Records Crucial Separation of Dudes Limitations of Internal Control 1 7 3 The costs of internal controls must not exceed their benefit Human Error Negligence 39 Fatigue Misj udgment 39 Confusion Human Fraud Intent to defeat internal controls for personal gain 3 Control of Cash 39 An effective system of internal control that protects cash and cash equivalents should meet three basic guidelines 1 Handling cash is separate from recordkeeping of cash 2 Cash receipts are promptly deposited in a bank 3 Cash disbursements are made by checks Cash Cash Equivalents and Liquidity gt Cash Currency coins and amounts on deposit in bank accounts checking accounts and some savings accounts Also includes items such as customer checks cashier checks certified checks and money orders gt Cash Equivalents Shortterm highly liquid investments that are l Readily convertible to a known cash amount 2 Close to maturity date and not sensitive to interest rate changes gt Liquidity How easily an asset can be converted into cash to be used to pay for services or obligations Inventory 99 Cash Control of Cash Receipts Cash Receipts By OvertheCounter M A Cash Receipts Cash register with lockedin record of transactions Two people open the mail 0 Money to cashier39s office List to accounting depbt Compare cash Copy oflist register record with cash reported Control of Cash Disbursements 39339 All expenditures should be made by check The only exception is for small payments from petty cash 39239 Separate authorization for checks signing and recordkeeping duties 39339 Use a voucher system Voucher System of Control gt A voucher system establishes procedures for 39 Verifying approving and recording obligations for eventual cash disbursements 39 Issuing checks for payment of veri ed approved and recorded obli ations 1 Cashier Check Supplier vendor Accounting J Invoice Approval Cashier K Receivin Ii RECBiVing Accounitng g R Requiesting amp i eport Purchasing Supplier Vendor Invoice Accounting L J l H I Purchasing Purchase Supplier Requiesting L J Order Receiving ampAccounting i Purchasing and 1 Requesting i Accounting Purchase Requisition r3 L Petty Cash System of Control gt Small payments required in most companies for items such as postage courier fees repairs and supplies Company Cashier 9 Petty Cash Petty Cashier Operating a Petty Cash Fund gt A petty cash fund is used only for business expenses 9 Petty cash receipts with either no signature or a forged signature usually indicate misuse of petty cash Petty Cash Example u4 Banking Activities as Controls V Bank accounts V Signature Cards V Deposit Tickets V Checks V Electronic Funds Transfer V Bank Statements Bank Reconciliation gt Bank reconciliation is prepared periodically to explain the difference between cash reported on the bank statement and the cash balance on company s books Bank Statement Book Balance Balance I Add Collections I Add Deposits in made by the bank transit I Add Interest 39 39 earned on checking I Deduct account Outstanding Checks I Deduct if 5 Nonsuf cient funds check NSF S gt Two sections 1 Reconcile bank statement balance to the adjusted bank balance 2 Reconcile book balance to the adjusted book balance The adjusted balances should be equal Day s Sales Uncollected gt How much time is likely to pass before we receive cash receipts from credit sales Accounts Receivable Days Sales Uncollected x 365 Net Sale
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