Chapter 7: Internal Control and Cash Flashcards
What objectives does Internal Control Activities achieve?
Reduce fraud, reliable financial reporting, effective and efficient operations, and compliance with relevant laws and regulations.
Describe what Establishment of Responsibilities is
An essential characteristic of internal control is assigning responsibility to specific individuals. Control is most effective when only one person is responsible for a task.
Describe Segregation of Duties
- Different individuals should be responsible for related activities. 2.The responsibility for accounting or record keeping for an asset should be separate from the responsibility for physical custody of that asset.
Define Documentation Procedures
Maintain adequate records to help protect assets by ensuring employees use prescribed procedures
Pre-printed forms are an important control to ensure required information is tracked and help to ensure employees do not miss recording important information
Define Physical and IT Controls
Physical and IT controls relate to the safeguarding of assets and enhancing the accuracy and reliability of the accounting records. Examples of these controls and safes/vaults/safety deposit boxes, locked warehouses and storage cabinets, password protected computer facilities, alarms, cameras and garment sensors, and electronic timecards.
Define Independent Checks of Performance
Most internal control systems include independent internal and/or external reviews of performance and records. This means having an independent person verify that the company’s control activities are being correctly followed.
Define Human Resources Controls
Insure assets, bond key employees, rotation of duties, require employees to take vacations, throughout background checks.
What are some limitations of Internal Control
Reasonable assurance (cost of internal control should not exceed benefit), human factor (fatigure, carelessness, lack of training), collusion, size of business.
What entry is required to establish a petty cash fund?
DEBIT Petty Cash
CREDIT Cash
Describe the process to replenish the Petty Cash fund.
The custodian of the fund must provide a summary of payments supported by receipts. The journal entry to record this would
DEBIT expense accounts based on the receipts and CREDIT cash to replenish. If cash is short or over, this would be recognized as either an expense or revenue in the journal entry.
When reconciling the bank account, what adjustments are made to the bank statement balance.
Add: Deposits in Transit
Less: Outstanding Cheques
Add/Less: Bank Errors
When reconciling the bank account, what adjustments are made to the per book balance.
Add: Credit Memos and other deposits not yet recorded (EFT payments, interest revenue, etc)
Less: Bank Charges, NSF Charges
Add/Less: Company Errors
