Chapter 7 Flashcards
Fraud Triangle
Opportunity, financial pressure, rationalization
Sarbanes-Oxley Act (SOx?)
Requires:
Companies keep an eye on management
Corporate execs and Board of directors ensure internal controls are reliable
Principles of control over financial reporting
Continual assessment to ensure that controls are working
Internal control
Safe guards assets from theft
enhance accuracy of accoutning records in accounting process
increase effiency of operations
Ensure compliance wiht laws
Components of internal control systems
a control environment
risk assessment
control activities
information and communication
control activities
establishment of responsibility physical controls segregation of duties independent internal verification documentaiton of procedures HR controls
Establishment of responsibility
requires limiting access only to authorized personnell and person is the only one given that task
Segregation of duties
responsibility of recording is separate form the responsibility of holding the materials (physical custody) so that one separate person outside of the inventory will count and report numbers
independent internal verification
verification should be made on SURPRISE basis ;)
done by an employee who is independent of the personnel responsible for info
discrepancies and exceptions would be reported to management
human resource controls
BONDING of employees who handle cash
rotating employees duties and REQUIRING employees to take vacations
conduct thorough background checks
Segregation of duties
employees who have physical custody of assets but do not have access to the accounting records
the duties of receiving cash, recording cash and having custody of cash are assigned to different individuals
Independent internal verification
each month, the assets on hand are compared to the accounting records by an internal auditor
Daily cash counts are made by cashier department supervisors.
Documentation procedures
A prenumbered shipping document is prepared for each shipment of goods to customers
physical controls
safes, time clocks, where you store safe things
cash management
Increase the speed of collection on receivables, keep inventory low, delay payment of liabilities, do not maintain idle cash
how do I journalize service charge ?
debit bank charges expense then credit cash
How do I journalize electronic funds transfer
Debit Cash, credit accounts receivable.
why are the independent records of checking account are seldom in agreement?
time lags
error
adjustments to bank balance
+deposits in transit,
+/-bank errors if needed to add for adjustment
-outstanding checks
adjustments to the book balance
\+electronic funds transfer(EFT) \+/- bank recording error -bounced checks (NSF) \+/-notes collect by banks company errors -service charges or check printing
Which of the following would be deducted from the balance per bank on a bank reconciliation?
outstanding checks.
Cash disbursements
? do i add or subract
Cash equivalents
Readily convertible to known amounts of cash, and
2.So near their maturity that their market value is relatively insensitive to changes in interest rates. (Generally only investments with maturities of three months or less qualify under this definition.)
Examples of cash equivalents are Treasury bills, commercial paper (short-term corporate notes), and money market funds. All typically are purchased with cash that is in excess of immediate needs.
what’s recorded as cash?
cash on hand, cash in banks, and petty cash are often combined and reported simply as Cash
-deposits in transit
how to calculate deposits in transit
Compare the cash receipts to the bank statement checking off each receipt to each check in the statement and see if any are left out.
