chapter 8-1 chapter 8 internal control and cash accounting principles, eighth edition

Chapter 8-1

CHAPTER CHAPTER 88

INTERNAL INTERNAL CONTROLCONTROLAND CASHAND CASH

Accounting Principles, Eighth Edition

Chapter 8-2

Internal ControlInternal ControlInternal ControlInternal Control

LO 2 Identify the principles of internal control.LO 2 Identify the principles of internal control.

Principles of Internal ControlPrinciples of Internal Control

PHYSICAL, MECHANICAL, AND ELECTRONIC CONTROLS

Physical

Mechanical and

Electronic

Illustration 8-3

Chapter 8-3


Principles of Internal ControlPrinciples of Internal Control

INDEPENDENT INTERNAL VERIFICATION

1. Records periodically verified by an employee who is independent.

2. Discrepancies reported to management.

OTHER CONTROLS

1. Bond employees.

2. Rotate employees’ duties and require vacations.

Chapter 8-4


LO 2 Identify the principles of internal control.LO 2 Identify the principles of internal control.

Limitations of Internal ControlLimitations of Internal Control

Costs should not exceed benefit.

Human element.

Size of the business.

Chapter 8-5

Cash ControlsCash ControlsCash ControlsCash Controls

Internal Control over Cash Internal Control over Cash ReceiptsReceipts

LO 3 Explain the applications of internal control principles to cash LO 3 Explain the applications of internal control principles to cash receipts.receipts.

Independent Internal

Verification

Supervisors count cash receipts daily; treasurer compares

total receipts to bank deposits daily

Establishment of Responsibility

Only designated personnel are

authorized to handle cash receipts

(cashiers)

Segregation of Duties

Different individuals receive cash, record cash receipts, and

hold the cash

Documentation Procedures

Use remittance advice (mail

receipts), cash register tapes, and

deposit slips

Physical, Mechanical, and

Electronic Controls

Store cash in safes and bank vaults; limit access to

storage areas; use cash registers

Other Controls

Bond personnel who handle cash; require employees to take

vacations; deposit all cash in bank daily

Illustration 8-5

Chapter 8-6


Cash consists of coins, currency, checks, money orders, and money on hand or on deposit in a bank.

Cash receipts come from:

cash sales

collections on account from customers

receipt of interest, rent, and dividends

investments by owners

bank loans

proceeds from the sale of noncurrent assetsLO 3 Explain the applications of internal control principles to cash LO 3 Explain the applications of internal control principles to cash

receipts.receipts.

Chapter 8-7

Cashier ring up sales

Supervisor

1. reads register totals

2. makes cash counts

3. prepares cash count sheets

Over-the-Counter ReceiptsOver-the-Counter ReceiptsOver-the-Counter ReceiptsOver-the-Counter Receipts

See page 347 & 348See page 347 & 348

Prepare daily summary

Prepare deposit slip

Cashier’s Department

Sales Department

Bank(deposit)

Treasurer(verification)

Accounting

(record)

Illustration 8-7

Chapter 8-8

Permitting only designated personnel to handle cash receipts

is an application of the principle of:

a. segregation of duties.

b. establishment of responsibility.

c. independent check.

d. other controls.

Review QuestionReview Question


LO 3 Explain the applications of internal control principles to cash LO 3 Explain the applications of internal control principles to cash receipts.receipts.

Chapter 8-9

Generally, internal control over cash disbursements is more effective when companies pay by check, rather than by cash.

Applications:

Voucher system

Electronic funds transfers (EFT) system

Petty cash fund


LO 4 Explain the applications of internal LO 4 Explain the applications of internal control principles to cash control principles to cash disbursements.disbursements.

Internal Control over Cash Internal Control over Cash DisbursementsDisbursements

Chapter 8-10


Internal Control over Cash Internal Control over Cash DisbursementsDisbursements Independent

Internal Verification

Compare checks to invoices; reconcile

bank statement monthly

Establishment of Responsibility

Only designated personnel are

authorized to sign checks (treasurer)

Segregation of Duties

Different individuals approve and make payments; check

signers do not record disbursements

Documentation Procedures

Use prenumbered checks and account

for them in sequence; each

check must have an approved

invoice

Physical, Mechanical, and

Electronic Controls

Store blank checks in safes, with limited access; print check

amounts by machine in indelible ink

Other Controls

Stamp invoices

PAID

Illustration 8-8

See illustration 8-8 page 350See illustration 8-8 page 350

Chapter 8-11

The use of prenumbered checks in disbursing cash is an application of the principle of:

a. establishment of responsibility.

b. segregation of duties.

c. physical, mechanical, and electronic controls.

d. documentation procedures.

Review QuestionReview Question



Chapter 8-12

Voucher System

Network of approvals, by authorized individuals, to ensure all disbursements by check are proper.

A voucher is an authorization form prepared for each expenditure.




Chapter 8-13

Electronic Funds Transfers (EFT)

Disbursement systems that uses wire, telephone, or computers to transfer cash balances between locations.




Chapter 8-14

Petty Cash Fund - Used to pay small amounts.

Involves:

1. establishing the fund,

2. making payments from the fund, and

3. replenishing the fund.



LO 5 Describe the operation of a petty cash fund.LO 5 Describe the operation of a petty cash fund.

chapter 8-1 chapter 8 internal control and cash accounting principles, eighth edition

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