ACCT 201 ACCT 201 ACCT 201 Reporting and Analyzing Cash and Internal Controls UAA – ACCT 201...

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Reporting and Analyzing Cash and Internal Controls

UAA – ACCT 201 Principles of Financial

Accounting Dr. Fred Barbee

Chap

ter 6

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Day #1

Topic LO Read HW

Internal ControlC1, C2

250-254

QS1, QS3,

E1, E3, P1A

Control of CostsC3, P1, 2, 3, 4

254-262

E2, E4, E10

Chapter 6 - Day 1 - Agenda

No Homework Due Today!

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Internal Control

Chap

ter 6

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Internal Control – All Policies and Procedures Used to . . .

Protect assets.

Ensure reliable accounting.

Promote efficient operations.

Urge adherence to company policies.

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Principles of Internal Control

Establish responsibilities.

Maintain adequate records.

Insure assets and bond employees.

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Separate recordkeeping and custody over assets

Divide responsibility for related transactions.

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Apply technological controls.

Perform regular and independent reviews.

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Technology and Internal Control

ReducedProcessing

Errors

MoreExtensive Testing

of Records

LimitedEvidence ofProcessing

CrucialSeparation of

Duties

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Limitations of Internal Control

Human Error

NegligenceFatigue

MisjudgmentConfusion

Human Fraud

Intent todefeat internal

controls forpersonal gain

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Limitations of Internal Control

The costs of internal controls must not exceed their

benefits.

The costs of internal controls must not exceed their

benefits.

CostsCostsBenefitsBenefits

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Control of Cash

Chap

ter 6

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Cash, Cash Equivalents, and Liquidity

CashCurrency, coins and amounts on deposit in bank account, checking accounts, and some savings accounts.

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Cash Equivalents are short-term, highly liquid investments that are:

Readily convertible to a known cash amount.

Close to maturity date and not sensitive to interest rate changes.


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Liquidity

How easily an asset can be converted into another asset or be used in paying for services or obligations.

Inventory Cash

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Control of Cash

Segregate handling of cash from recordkeeping of cash.

Cash receipts are promptly (daily) deposited in a bank.

Cash disbursements are made by check.

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Control of Cash Receipts

Over-the-Counter Cash Receipts

Cash register with locked-in record of transactions.

Compare cash register record with cash reported.

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Control of Cash Receipts

Cash Receipts By Mail

Two people open the mail.

Money to cashier’s office

List to accounting dept.

Copy of list filed

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Control of Cash Disbursements

All expenditures made by check. The only exception is for small payments from petty cash.

Separate authorization, check signing and recordkeeping duties.

Apply a voucher system.

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A Voucher System of Control

Establishes procedures for:

Accepting obligations resulting in cash disbursements.

Verifying, approving and recording obligations.

Issuing checks for payment of verified, approved and recorded obligations.

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A Voucher System of Control

Establishes procedures for:

Requiring obligations be recorded when incurred.

Treating each purchase as an independent transaction.

Check

Invoice Approval

Receiving Report

Invoice

Purchase Order

Voucher System of Control

Purchase Requisition

Voucher

Cashier’s Office

Accounting Dept.

Receiving Dept.

Supplier (Vendor)

Purchasing Dept.

Requesting Dept.

Cashier’s OfficeAccounting, Requesting,

Purchasing Depts.

Accounting Dept.

Supplier (Vendor)

Purchasing andAccounting Depts.

Supplier (Vendor)

Purchasing

RequestingDepartment

Accounting

One copyof purchaserequisition

used toprepare the

voucher.

One copyof purchaserequisition

used toprepare the

voucher.

Clothes Mart No. 1167

From: Shoe DepartmentTo: Purchasing

Request purchase of the following item(s):Model No. Description Quantity

ABA32 Sandals - black 25

C1287 Sandals - white 25

Reason for Request: Refill stock

Approved by: Andy Taylor


















Copy 2

Copy 1

Retained in Purchasing

Clothes Mart No. M47

Nashville, TN

To: Westcoast Shoes35 Sunset PlaceSan Clemente, CA 90277

Model No. Description Quantity Price Amount

ABA32 Sandals - black 25 8.00$ 200.00$

C1287 Sandals - white 25 8.00 200.00

All shipments and invoices must include PO number

Order by: B.T. Fife

Purchase Order


Nashville, TN




C1287 Sandals - white 25 8.00 200.00


Order by: B.T. Fife

Purchase Order


Nashville, TN




C1287 Sandals - white 25 8.00 200.00


Order by: B.T. Fife

Purchase Order


Nashville, TN




C1287 Sandals - white 25 8.00 200.00


Order by: B.T. Fife

Purchase Order

Copy 3

Copy 2Accounting

Requesting Dept.

Copy 1Vendor

Clothes Mart Voucher No. 2718

Nashville, Tennessee

Date: May 22, 2002Pay to: Westcoast Shoes

City: San Clemente State: CA

For the following:(attach all invoices and supporting documents)

Invoice Date Terms Invoice No. and Details Amount05/18/02 2/10, n/30 Invoice 2718 400.00$ 05/28/02 2/10, n/30 Less discount 8.00

Net amount payable 392.00$

Payment approval:

Bart ThurmanAuditor

Inside of a VoucherInside of a Voucher

Account Debited AmountMerchandise inventory 392.00 Due dateStore supplies Pay to: Westcoast ShoesOffice supplies City: San ClementeSelling expense State: CAGeneral expeneOther: Summary of charges:

Total charges 400.00$ Discount 8.00 Net payment 392.00$

Record of payment:

Voucher Payable Credit 392.00 Paid Check No.

Accounting Distribution

Outside of a Voucher

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Petty Cash System of Control

Small payments required in most companies for items such as postage, courier fees, repairs and supplies.

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Operating a Petty Cash Fund

Petty Cashier

Treasurer andTreasurer andAccountantAccountant

Petty CashierPetty Cashier

GENERAL JOURNAL Page 4Date Description PR Debit Credit

May 1 Petty Cash 400

Cash 400

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Petty Cashier



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34¢

Stamps Courier



34¢

Stamps Courier

Receipts


Receipts

Treasurer andTreasurer andAccountantAccountant


May 15 Postage Expense 45

Courier Expense 80

Cash 125

$125To reimburse

petty cash fund

We use a CashOver and Short

account if needed.

We use a CashOver and Short

account if needed.


Petty Cash Example

Tension Co. maintains a petty cash fund of Tension Co. maintains a petty cash fund of $400. The following summary information $400. The following summary information was taken from petty cash vouchers for was taken from petty cash vouchers for July:July:

Travel Expenses $79.30Customer Business Lunches 93.42Express Mail Postage 55.00Miscellaneous Office Supplies 32.48

Let’s look at replenishing the fund if the Let’s look at replenishing the fund if the balance on July 31 was $137.80. balance on July 31 was $137.80.

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Petty Cash Example

What amount of cash will be required to replenish the petty cash fund?a. $260.20b. $262.20c. $139.80d. $137.80

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Petty Cash Example

The journal entry to replenish the petty cash fund is:


Jul 31 Travel Expense 79.30

Entertainment Expense 93.42

Postage Expense 55.00

Office Supplies Expense 32.48

Cash Over and Short 2.00

Cash 262.20

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Control of Purchases Discounts

Chap

ter 6

Control of Purchase Discounts

Previously we have recorded purchases of Merchandise Inventory at the

gross amount. Discounts were not recognized until payment was made.

As an alternative, we may record the purchase net of any discount. We

assume that all discounts will be taken.


When we use the net method, attention is drawn when available

discounts are not taken.

Discounts Lost is anexpense account and is included

on the income statement.


ACCT 201 ACCT 201 ACCT 201 Reporting and Analyzing Cash and Internal Controls UAA – ACCT 201...

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