Cash Coin and currency Checking, savings, and money market accounts Undeposited, cashier, and certified checks © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. LO1

Cash Equivalents Examples: Readily convertible to cash Original maturity to investor of three months or less Examples: Commercial paper U.S. Treasury bills Certain money market funds © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

Cash Management Necessary to ensure company has neither too little nor too much cash on hand Tools Cash flow statement Bank reconciliations Petty cash funds © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. LO2

Bank Statements Cash balance, beginning of period +Deposits = Cash balance, end of period +Deposits +Customer notes and interest collected by bank +Interest earned Canceled checks NSF checks Service charges © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

Bank Reconciliation – Step 1 Trace deposits listed on the bank statement to the books. Identify the deposits in transit. Add to the bank balance. Deposits in transit: Late period deposits not yet reflected on bank statement © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

Bank Reconciliation – Step 2 Trace checks cleared by the bank to the books. Identify outstanding checks. Subtract from the bank balance. Outstanding checks: Checks written but not yet presented to bank © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

Bank Reconciliation – Step 3 List all other additions (credit memoranda) shown on the bank statement. Add to the book balance. Credit memoranda: Interest earned, customer notes collected, etc. © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

Bank Reconciliation – Step 4 List all other subtractions (debit memoranda) shown on the bank statement. Subtract from the book balance. Debit memoranda: NSF checks, service charges, etc. © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

Example of Reconciliation Cash Account Adjustments: Debit Memoranda Balance per books, June 30 $2,895.82 Add: Customer note collected $500.00 Interest on customer note 50.00 Interest earned during June 15.45 Error in recording check 498 54.00 619.45 Deduct: NSF check $245.72 Collection fee on note 16.50 Service charge for lockbox 20.00 (282.22) Adjusted balance, June 30 $3,233.05 2

Bank Reconciliation – Step 5 Identify errors made by the bank or the company in recording the transactions during the period. © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

Bank Reconciliation – Step 6 Use the information collected in steps 1 through 5 to prepare the bank reconciliation. Bank Reconciliation Balance per bank $$$ Adjusted balance $$$ Balance per books $$$ Adjusted balances for book and bank must agree © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

Example of Reconciliation Bank Statement Adjustments Balance per statement, June 30 $3,308.59 Adjusted balance, June 30 $3,233.05 Cash Account Adjustments Balance per books, June 30 $2,895.82 Adjusted balance, June 30 $3,233.05 © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 1

Bank Reconciliation Adjustments Balance per bank $$$ Adjusted balance $$$ Balance per books $$$ Book adjustments are the basis for adjustments © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

Petty Cash Journalize Establishment of A check is written Fund Disbursement With Proper Documentation Fund Replenished © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

Internal Control System Consists of the policies and procedures necessary to ensure: The safeguarding of an entity’s assets The reliability of its accounting records The accomplishment of its overall objectives © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. LO3

Sarbanes-Oxley Act of 2002 (SOX) Act of Congress intended to bring reform to corporate accountability and stewardship in response to corporate scandals © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

Internal Control Control Environment Internal Accounting Control System Internal Control Procedures © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

The Control Environment Management’s competence and operating style Personnel policies and practices Influence of board of directors © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

The Accounting System Methods and records used to report transactions and maintain financial information Can be manual, fully computerized, or a combination of both Use of journals is an integral part of any system © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

Internal Control Procedures Independent Review and Appraisal Independent Verification The Design and Use of Business Documents Safeguarding Assets and Records Proper Authorizations Segregation of Duties © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. LO4

Proper Authorizations Authority and responsibility go hand in hand Segregation of Duties Separate physical custody from the accounting for assets © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

Independent Verification One individual or department acts as a check on the work of another Safeguarding Assets and Records Protect assets and accounting records from loss, theft, unauthorized use, etc. © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

Independent Review and Appraisal Provide for periodic review and appraisal of the accounting system and the people operating it © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

The Design and Use of Business Documents Capture all relevant information about a transaction and assist in proper recording and classification. Are properly controlled © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

Limitations on Internal Control No system is entirely foolproof Employees in collusion can override the best controls Cost vs. benefit tradeoff © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

Computerized Business Documents and Internal Control Cash receipts should be deposited intact in the bank on a daily basis All cash disbursements should be made by check © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. LO5

Control Over Cash Receipts Cash received over the counter (e.g., cash sales) Cash received in the mail (e.g., credit sales) © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

Controls Over Cash Received Over the Counter Cash registers Locked-in cash register tape Prenumbered customer receipts Investigate recurring discrepancies © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

Controls Over Cash Received in the Mail Two employees open mail Prelist prepared Monthly customer statements © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

Document Flow for Merchandise Check Prepared Purchase Requisition Receiving Report Order Invoice Approval © 2013 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

End of Chapter 6