1、7 - 1 Accounting, 5/E GUOWEI HUST Internal Control, Managing Cash, and Making Ethical Judgments Chapter 7 7 - 2 Accounting, 5/E GUOWEI HUST Define internal control. Objective 1 7 - 3 Accounting, 5/E GUOWEI HUST Internal Control What is internal control? It is the organizational plan and all the rela
2、ted measures that an entity adopts to safeguard assets, encourage adherence to company policies, promote operational efficiency, and. ensure accurate and reliable accounting records. 7 - 4 Accounting, 5/E GUOWEI HUST Operational Controls Financial Reporting Controls Internal Control 7 - 5 Accounting
3、, 5/E GUOWEI HUST Identify the characteristics of an effective system of internal control. Objective 2 7 - 6 Accounting, 5/E GUOWEI HUST Establishing an Effective System of Internal Control Characteristics of an effective internal control system include: 1 Competent, reliable, and ethical personnel
4、2 Assignment of responsibilities 3 Proper authorization 4 Separation of duties 7 - 7 Accounting, 5/E GUOWEI HUST Separation of operations from accounting Separation of the custody of assets from accounting Separation of the authorization of transactions from the custody of related assets Separation
5、of duties within the accounting function Separation of Duties 7 - 8 Accounting, 5/E GUOWEI HUST Stolen credit card numbers Computer virus and Trojan horses Impersonation of companies Internal Controls for e-Commerce 7 - 9 Accounting, 5/E GUOWEI HUST Internal Controls for e-Commerce What is an encryp
6、tion? It is the primary method of achieving confidentiality in e-commerce. Plain-text messages are rearranged by some mathematical process. The encrypted message cannot be read by anyone who does not know the process. 7 - 10 Accounting, 5/E GUOWEI HUST Internal Controls for e-Commerce The Internet C
7、orporate Intranet Firewall Network Computers 7 - 11 Accounting, 5/E GUOWEI HUST The Limitations of Internal Control Most internal control measures can be circumvented or overcome. Collusion is when two or more employees work as a team with the purpose to defraud the firm. 7 - 12 Accounting, 5/E GUOW
8、EI HUST The Bank Account as a Control Device Documents used to control a bank account include: signature card deposit ticket check bank statement bank reconciliation 7 - 13 Accounting, 5/E GUOWEI HUST The Bank Reconciliation What are two records of a businesss cash? 1 Cash account in the businesss o
9、wn general ledger. 2 The bank statement which tells the actual amount of cash the business has in the bank. 7 - 14 Accounting, 5/E GUOWEI HUST The Bank Reconciliation Items recorded by a company not on the bank statement: deposit in transit outstanding checks 7 - 15 Accounting, 5/E GUOWEI HUST The B
10、ank Reconciliation Items on a bank statement and not recorded by the business: bank collections bank fees interest earned on account NSF checks 7 - 16 Accounting, 5/E GUOWEI HUST The Paths That Two Checks Take (Good Check) aker writes check to payee. Payee deposits check in bank. Payees bank sends c
11、heck to makers bank. Makers bank pays the check. 7 - 17 Accounting, 5/E GUOWEI HUST The Paths That Two Checks Take (NFS Check) Makers bank balance is not sufficient to pay the check. Makers bank sends the worthless check back to payees bank. Payees bank decreases payees balance. Payee holds worthles
12、s check. 7 - 18 Accounting, 5/E GUOWEI HUST Prepare a bank reconciliation and the related journal entries. Objective 3 7 - 19 Accounting, 5/E GUOWEI HUST The Bank Reconciliation Example At the beginning of July, Sahita, Inc. received the Junes bank statement. It indicated the following: The bank bal
13、ance was $63,275. The bank had collected a note receivable from one of Sahitas customers in the amount of $1,325. 7 - 20 Accounting, 5/E GUOWEI HUST The Bank Reconciliation Example The bank paid the electric bill of $1,500. There was a $200 check returned for NSF. Interest earned on the account was
14、$265. Bank service charges were $12. 7 - 21 Accounting, 5/E GUOWEI HUST The Bank Reconciliation Example Sahitas books indicates a cash balance of $66,647. A deposit of $11,250 was mailed to the bank on June 30. Checks issued in June for $8,000 have not yet been paid by the bank. 7 - 22 Accounting, 5
15、/E GUOWEI HUST Balance per bank, June 30 $63,275 Add deposit in transit 11,250 $74,525 Less outstanding check 8,000 Adjusted bank balance $66,525 The Bank Reconciliation Example 7 - 23 Accounting, 5/E GUOWEI HUST Balance per books, June 30 $66,647 Add: Note receivable collected by the bank 1,325 Int
16、erest income 265 $68,237 Less: Payment of electric bill 1,500 NSF check 200 Service charge 12 Adjusted book balance $ 66,525 The Bank Reconciliation Example 7 - 24 Accounting, 5/E GUOWEI HUST The Bank Reconciliation Example Balance per books $66,525 Balance per bank $66,525 Equal amounts 7 - 25 Acco
17、unting, 5/E GUOWEI HUST Record Reconciling Items June 30, 200x Cash 1,325 Notes Receivable 1,325 Notes collected by the bank June 30, 200x Cash 265 Interest Income 265 Interest earned on bank balance 7 - 26 Accounting, 5/E GUOWEI HUST Record Reconciling Items June 30, 200x Utilities Expense 1,500 Ca
18、sh 1,500 Monthly electricity expense June 30, 200x Accounts Receivable NSF 200 Cash 200 NSF check returned by bank 7 - 27 Accounting, 5/E GUOWEI HUST Record Reconciling Items June 30, 200x Bank Service Fees 12 Cash 12 Bank service charges 7 - 28 Accounting, 5/E GUOWEI HUST Apply internal controls to
19、 cash receipts. Objective 4 7 - 29 Accounting, 5/E GUOWEI HUST Cash Receipts Over the Counter The terminal should be positioned so that customers can see the amount the cashier enters into the cash register. The cash drawer should open only when the sales clerk enters an amount on the keypad. The ro
20、ll of tape locked inside the machine records each sale and cash transaction. 7 - 30 Accounting, 5/E GUOWEI HUST Cash Receipts Over the Counter Pricing merchandise at “uneven” amounts means that the clerk has to open the cash drawer. This requires entering the amount of the sale on the keypad and so
21、onto the register tape. 7 - 31 Accounting, 5/E GUOWEI HUST Cash Receipts Over the Counter At the end of the day, the cashier deposits the cash in the bank. The tape goes to accounting. 7 - 32 Accounting, 5/E GUOWEI HUST Cash Receipts by Mail All incoming mail should be opened by a mailroom employee.
22、 This person should compare the check received with the remittance advice. Cash receipts should be given to the cashier. The mailroom employee forwards the remittance advice to accounting. 7 - 33 Accounting, 5/E GUOWEI HUST Cash Receipts by Mail Many companies use a lock-box system. Customers send t
23、heir checks directly to an address that is a bank account. Company personnel do not handle the cash. 7 - 34 Accounting, 5/E GUOWEI HUST Cash 24,980 Cash Short and Over 20 Sales Revenue 25,000 Daily cash sales Cash Short and Over Assume that the cash register tapes indicate sales revenue of $25,000.
24、However, the cash received was $24,980. What entry would record the days sales? 7 - 35 Accounting, 5/E GUOWEI HUST Apply internal controls to cash payments. Objective 5 7 - 36 Accounting, 5/E GUOWEI HUST Control Over Approval of Payments Purchase Request Purchase Order Invoice Receiving Report Disbu
25、rsement Packet 7 - 37 Accounting, 5/E GUOWEI HUST Control Over Approval of Payments The accounting department. combines all of these documents, checks them for accuracy, and. forwards this disbursement packet to designated officers for approval and payment. 7 - 38 Accounting, 5/E GUOWEI HUST Control
26、ling Petty Cash Payments On June 15, Sahita Inc. manager decided to establish a $250 petty cash fund. What is the entry? June 15, 200x Petty Cash 250 Cash in Bank 250 To open the petty cash fund 7 - 39 Accounting, 5/E GUOWEI HUST Controlling Petty Cash Payments Jose is the petty cash custodian respo
27、nsible for the fund. On June 20, he purchased supplies in the amount of $70. For each disbursement, he prepares a petty cash ticket. At all times the amount of cash in the petty cash fund plus the petty cash tickets must equal $250. 7 - 40 Accounting, 5/E GUOWEI HUST Controlling Petty Cash Payments
28、Jose also spent $20 for delivery charges and $60 for coffee and other miscellaneous expenses. What is the journal entry to record the replenishment of the fund? 7 - 41 Accounting, 5/E GUOWEI HUST June 30, 200x Supplies 70 Delivery Expense 20 Miscellaneous Expense 60 Cash in Bank 150 To replenish the
29、 petty cash fund Controlling Petty Cash Payments 7 - 42 Accounting, 5/E GUOWEI HUST Using a budget to manage cash. Objective 6 7 - 43 Accounting, 5/E GUOWEI HUST Cash Budget Example On June 1, the cash balance of Claras Boutique amounted to $20,000. She expected collections during the month to be $1
30、00,000. Clara budgeted $110,000 cash payments during the month. She would like to keep a $20,000 balance at all times. How much money must she borrow? 7 - 44 Accounting, 5/E GUOWEI HUST Cash Budget Example Beginning balance $ 20,000 Budgeted collections 100,000 Cash available $120,000 Less budgeted
31、payments 110,000 Cash balance $ 10,000 She needs to borrow $10,000. 7 - 45 Accounting, 5/E GUOWEI HUST Cash Budget Example Not included in the budgeted collections is a $73,400 sale to a store in Rio de Janeiro. She expects to collect this amount in July. Assume the exchange rate is 3.67 reals per d
32、ollar. How much does she expect to collect? 73,400 reals 3.67 = $20,000 7 - 46 Accounting, 5/E GUOWEI HUST Make ethical judgments in business. Objective 7 7 - 47 Accounting, 5/E GUOWEI HUST Ethics and Accounting Code of Conduct 88% Companies 0.75 0.50 0.25 0.00 7 - 48 Accounting, 5/E GUOWEI HUST Professional Code of Ethics Accountants are held to very high standards of conduct. There is no compromising. Would you hire an accountant who is “almost always” honest? Internal controls rely upon basic honesty and integrity. 7 - 49 Accounting, 5/E GUOWEI HUST End of Chapter 7
