INTERNAL CONTROL AND CASH handout

chap 8

Chapter Chapter 8 Internal Control and Cash Financial Accounting, Sixth Edition Chapter 8-1 Study Study Objectives Objectives Define internal control Identify the principles of internal control Explain the applications of internal control principles to cash receipts Explain the applications of internal control principles to cash disbursements Describe the operation of a petty cash fund Indicate the control features of a bank account Prepare a bank reconciliation Explain the reporting of cash Chapter 8-2 Internal Internal Control Control and and Cash Cash Internal Control The SarbanesOxley Act Principles Limitations Chapter 8-3 Cash Controls Control over cash receipts Control over cash disbursements Use of a Bank Making deposits Writing checks Bank statements Reconciling the bank account Reporting Cash Cash equivalents Restricted cash Compensating balances Internal Internal Control Control Methods and measures adopted to: Safeguard assets Enhance accuracy and reliability of accounting records Reduce risk of: a Errors (unintentional) b Irregularities (intentional) Under the Sarbanes-Oxley Act, all publicly traded U.S corporations are required to maintain an adequate system of internal control Chapter 8-4 SO Define internal control Internal Internal Control Control The Sarbanes-Oxley Act Companies must develop principles of control over financial reporting continually verify that controls are working Independent auditors must attest to the level of internal control SOX created the Public Company Accounting Oversight Board (PCAOB) Chapter 8-5 SO Define internal control Internal Internal Control Control Principles of Internal Control Illustration 8-1 Measures vary with size and nature of the business management’s control philosophy Chapter 8-6 SO Identify the principles of internal control Internal Internal Control Control Principles of Internal Control ESTABLISHMENT OF RESPONSIBILITY Control is most effective when only one person is responsible for a given task SEGREGATION OF DUTIES Related duties should be assigned to different individuals DOCUMENTATION PROCEDURES Companies should use prenumbered documents and all documents should be accounted for Chapter 8-7 SO Identify the principles of internal control Internal Internal Control Control Principles of Internal Control Illustration 8-3 PHYSICAL, MECHANICAL, AND ELECTRONIC CONTROLS Physical Mechanical and Electronic Chapter 8-8 SO Identify the principles of internal control Internal Internal Control Control Principles of Internal Control INDEPENDENT INTERNAL VERIFICATION Records periodically verified by an employee who is independent Discrepancies reported to management OTHER CONTROLS Bond employees Rotate employees’ duties and require vacations Conduct background checks Chapter 8-9 SO Identify the principles of internal control Internal Internal Control Control Limitations of Internal Control Costs should not exceed benefit Human element Size of the business Chapter 8-10 SO Identify the principles of internal control ... 8-2 Internal Internal Control Control and and Cash Cash Internal Control The SarbanesOxley Act Principles Limitations Chapter 8-3 Cash Controls Control over cash receipts Control over cash disbursements... Mechanical, and Electronic Controls SO Explain the applications of internal control principles to cash disbursements Cash Cash Controls Controls Internal Control over Cash Disbursements Generally, internal. .. shown on daily cash summary Chapter 8-14 SO Explain the applications of internal control principles to cash receipts Cash Cash Controls Controls Illustration 8-8 Internal Control over Cash Disbursements