Chapter 6- Reporting and Analyzing Cash, Fraud, and Internal Control Flashcards
What is on the fraud triangle?
Opportunity, Pressures and Incentives, and Rationalization
What is the most susceptible asset to theft and fraud?
cash
What are internal controls?
Used to monitor business activities and help to:
-protect our assets (cash and inventory especially)
-ensure reliable accounting
-promote efficiency
-uphold company policies (keep employees accountable)
ex: cameras/security, locks/access swipes, segregation of duties, passwords, guards, fences, firewalls
What are good internal controls over cash?
-a different employee should: record cash (JEs), authorize payments, and custody of amount
-cash receipts should be deposited daily or very regularly (put money in the bank)
-Pay via “EFT” as much as possible (Electronic funds transfer ex: venmo, paypal, etc)
What is considered cash?
-dollar bills and coins
-bank accounts
-checks (personal and cashier
-deposits
-gold, savings bonds
What is Cash and Cash Equivalents?
*new account
An asset
NB:debit
Cash equivalents are short term, highly liquid investments that meet 2 criteria:
1. convertible to a known amount
2. maturity date is due within 3 months
if it meets these 2 criteria its a “cash equivalent” not a ST investment
What is petty cash?
small payments made from cash on hand
ex:
-office supplies
-one off lunches/pizza tips
-postage
-courrier fees
-minor repairs
-must maintain a monthly balance (do by estimating amount needed)
-cas increase or decrease the amount each month
What are petty cash tickets?
each payment made is recorded on a petty cash ticket and kept in the box
-this serves as a receipt showing payment
What is a petty cash report?
When you take the petty cash tickets and create a petty cash report which shows all payments made during the month and for what
What is a reimbursement JE?
-record the JE at month end
*do NOT record JE for every individual petty cash payment (ONLY done at end of period)
What is the Petty Cash account?
new account
-asset
-NB: debit
Only used when:
1. set up petty cash amount (for the first time)
2. increase balance
3. decrease balance
**NOT for reimbursement JE!!!!
What is cash over and short?
-this is when petty cash left at the end of the month does not agree to the cash tickets/receipts
Reasons:
-theft
-not properly writing a receipt for every payment made
-lost a receipt
-wrote a receipt for the wrong amount
-paid wrong amount or received the wrong change back
What is the account Cash Over and Short?
*new account
-NB depends:
over:credit
short:debit
What are some bank internal controls (safeguards)?
-signature cards:
bank has a copy of any authorized signor’s signature on file
compare written checks against the signature cards
-deposit slips:
states amount deposited
new account balance
date of transaction and time stamp
bank info
-checks:
cancelled checks- checks that have “cleared the bank”
NOT voided checks
on bank statement at the end are pictures of all cancelled checks
-bank statement:
provided for each account at the end of each month
shows all transactions (all increases and decreases) during the time period and dates (and who transactions are with)
=beg account balance +/- transactions=ending account balance
What increases the bank statement?
deposits and interest
What decreases the bank statement?
payments
withdrawals
service fees (overdraft fee, bank fee, check printing fees, ATM fees)
What is bank reconciliation?
-a month end report that explains any difference between the cash in the bank and the cash listed on our books
-verify accuracy of cash in the bank and reported on books
-balances can differ
+/- differences > the ending amounts will agree
What increases/decreases the bank adjustment?
+ Deposits in transit
- Outstanding checks
+/- Bank errors
What increases/decreases the book adjustment?
+ Interest earned
+ Unrecorded cash receipts (EFTs collected by the bank)
- NSF checks
- Service fees
+/- Book errors
What are deposits in transit?
-(outstanding deposits)
-lag time between when a deposit is made and when it shows up in the bank (2-3 days)
** + the bank side (already recorded on the books)
What are outstanding checks?
-Check that our company wrote that has not yet cleared the bank (it has not yet come out of our bank yet)
Reasons: deposit lag time, check is in the mail
** - bank side (check was already recorded in books)
What are NSF checks?
-“Non sufficient funds” (NSF) Check
-Someone wrote our company a “bad check”
-wrote for an amount of money that they did not have in their bank account
-Check “bounced”
** - book side
-also charges for a NSF fee
The bounced check and NSF are charged to customer’s accounts receivable
