Ch 6: cash, fraud, internal controls Flashcards
an internal control system is policies and procedures used to
-protect assets
-ensure reliable accounting
-promote effienct operations
-uphold company policies
sarbanes oxly act
requires documentation and verification of internal controls and emphasizes effective
internal controls. Managers must attest to internal controls.
what are the 7 principles of internal control
1- establish reponsibilites
2-maintain adequate records
3- insure assets and bond key employees
4-seperate record-keeping from custody of assets
5-divide responsibility for related transactions
6- apply technological controls
7- perform regular and independent reviews
1- establish responsibilites
responsibility for a task should be assigned to one person. if responsibility is not established, determining who is at fault is difficult
2- maintain adequate records
good recordkeeping helps protect assets and helps managers monitor company activtieis
3-insure assets and bond key employees
assets should be insured against losses, and employees handling lots of cash and easily transferable assets should be bonded
4-separate record-keeping from custody of assets
a person who controls or has access to an asset, must not have access to that assets accounting records
5-divide responsibility for related transactions
responsibility for a transaction should be divided btw 2 or more individuals or departments
(One person’s work is a check on the others to prevent
errors. This is not duplication of work.)
(separation of duties)
6-apply technological controls
use technology such as id scanners to protect assets and improve control
7-perform regular independent reviews
regular review of internal controls should be performed by outside reviers, preferably auditors
blockchain
viewed as a new more secure type of accounting ledger
liquidity
companies ability to pay for its current liabilitys
liquid assets
assets that can be readily used to pay for liabilities
ex: cash
cash
currency, coins, checks, and deposits in bank accounts
also includes idtemas that can be deposited into these accs such as customer checks
cash equivilents
short term highly liquid assets meeting 2 criters
1-readiliy convertavle to a known cash amt
2-close enough to their due data so that thier market value will not greatly change (within 3 months)
ex: treasury bills
goals of cash management
1- plan cash recepits to meet cash payments when due
2-keep a minimum level of cash necessary to operate
Cash account
Basic guidelines for control of cash and cash equivalents include: handling of cash must be separate from
recordkeeping of cash, cash receipts are promptly deposited in bank, and payments of cash are by check.
Includes currency, coins, checks and deposits in bank accounts.
what account is used to determine the over or short differences in cash
cash over and short
what is cash over and short debited vs creditied
D- when the actual cash is less
C- when actual cash is more
voucher system
a set of procedures and approvals designed to control cash payemnts and the acceptance of liabiliies
petty cash
small amounts of cash in a fund to pay for minor expenses such as shipping fees or minor repairs
Entry to set up a petty cash fund
D-petty cash
C-cash
increasing or decreasing petty cash fund
inc
D-petty cash
C-cash
dec
D-cash
C-petty cash
what does bank statement include
-beginging period acc balance
-withdrawls/other dec to acc
-deposits/other inc to acc
-end of period balance
bank reconciliation
Report that explains the difference between the book (company) balance of cash and the cash balance reported on the bank statement
bank balance adjustments
-deposits in transit (add)
-outstanding check (sub)
-bank errors (add/sub)
book balance adjustments
-interest earned and unrecorded cash receipts (add)
-bank fees (sub)
-nsf checks (sub)
-book errors (add/sub)
entries of bank recononickation
-collection of note
-interest earned
-bank fees
-nsf checks
signiture card
Used by bank employees to verify signatures on checks.
Deposit ticket
Lists items such as currency and checks along with their dollar amounts.
Check
Signed by the depositor instructing the bank to pay a specified amount of money to a designated recipient.
entry for bank rec numbers
D-Cash
C-whatever acc
cash budget
summarizes the projected cash payments and cash receipts.
transportation in is what account
merchanise inventory
Receiving report
Notifies employees that ordered goods have been received, and describes the quantity and condition of the goods.
Purchase requisition
Notifies the purchasing department of items that should be purchased.
purchase order
Used by the purchasing department to place an order with a supplier.
Invoice approval
. A required checklist of steps for approving an invoice for recording and payment.
B. A document prepared by the vendor that includes details such as the items sold, sales prices, terms of sale, and customer name.
invoice
An internal file used to store documents and information to control cash payments and to ensure that a transaction is properly authorized and recorded.
voucher
(cosco) Evaluation of internal control effectiveness by external auditors.
monitoring
Implementation of procedures to reduce risk of loss. (cosco)
control activities
Executive management promotes ethics and integrity of its internal control
Control environment
Reporting of control effectiveness to mid-level managers.
infromation and communication
