1. Accounting Principles, Ninth Edition
Chapter 8
Fraud, Internal
Control and Cash
Accounting Principles, Ninth Edition

2. Cash Controls Cash Receipts Controls Establishment of Responsibility
Only designated personnel are authorized to handle cash receipts (cashiers)
Documentation Procedures
Use remittance advice (mail receipts), cash register tapes, and deposit slips
Independent Internal Verification
Supervisors count cash receipts daily; treasurer compares total receipts to bank deposits daily
Segregation of Duties
Different individuals receive cash, record cash receipts, and hold the cash
Physical, Mechanical, and Electronic Controls
Store cash in safes and bank vaults; limit access to storage areas; use cash registers
Human Resource Controls
Bond personnel who handle cash; require employees to take vacations; deposit all cash in bank daily
Illustration 8-4
SO 3 Explain the applications of internal control principles to cash receipts.

3. Cash Controls Discussion Question
Q8-6. At the corner grocery store, all sales clerks make change out of one cash register drawer. Is this a violation of internal control? Why?
See notes page for discussion
Question 8-3 (textbook)
This is a violation of the internal control principle of establishing responsibility. In this case, each sales clerk should have a separate cash register or cash register drawer.
SO 3 Explain the applications of internal control principles to cash receipts.

4. Cash Controls Discussion Question
Q8-11. The management of Sewell Company asks you, as the company accountant, to explain (a) the concept of reasonable assurance in internal control and (b) the importance of the human factor in internal control.
See notes page for discussion
Question 8-8 (textbook)
( a ) The concept of reasonable assurance rests on the premise that the costs of establishing control procedures should not exceed their expected benefit.
(b) The human element is an important factor in a system of internal control. A good system can become ineffective through employee fatigue, carelessness, or in difference. Moreover, internal control may become ineffective as a result of collusion.
SO 3 Explain the applications of internal control principles to cash receipts.

5. Cash Controls
Cash consists of coins, currency, checks, money orders, and money on hand or on deposit in a bank.
Cash receipts come from:
cash sales
collections on account from customers
receipt of interest, rent, and dividends
investments by owners
bank loans
proceeds from the sale of noncurrent assets
SO 3 Explain the applications of internal control principles to cash receipts.

6. Over-the-Counter Receipts
Illustration 8-4
SO 3 Explain the applications of internal control principles to cash receipts.

7. Review Question Cash Controls
Permitting only designated personnel to handle cash receipts is an application of the principle of:
a. segregation of duties.
b. establishment of responsibility.
c. independent check.
d. Human resource controls.
See Page 358

8. Cash Controls Cash Disbursements Controls
Generally, internal control over cash disbursements is more effective when companies pay by check, rather than by cash.
Applications:
Voucher system
Petty cash fund
SO 4 Explain the applications of internal control principles to cash disbursements.

9. Cash Controls Cash Disbursements Controls Documentation Procedures
Illustration 8-6
Documentation Procedures
Use prenumbered checks; checks must have an approved invoice; require employees to use corporate credit cards for reimbursable
expenses
Establishment of Responsibility
Only designated personnel are authorized to sign checks (treasurer) and approve vendors
Independent Internal Verification
Compare checks to invoices; reconcile bank statement monthly
Human Resource Controls
Bond personnel
who handle cash;
require employees
to take vacations;
conduct background
checks
Segregation of Duties
Different individuals approve and make payments; check signers do not record disbursements
Physical Controls
Store blank checks in safes, with limited access; print check amounts by machine in indelible ink

10. Discussion Question Cash Controls
Q8-17 Joe Griswold Company’s internal controls over cash disbursements provide for the treasurer to sign checks imprinted by a checkwriting machine in indelible ink after comparing the check with the approved invoice. Identify the internal control principles that are present in these controls.
See notes page for discussion
Question 8-14 (textbook)
SO 4 Explain the applications of internal control principles to cash disbursements.

11. Review Question Cash Controls
The use of prenumbered checks in disbursing cash is an application of the principle of:
a. establishment of responsibility.
b. segregation of duties.
c. physical, mechanical, and electronic controls.
d. documentation procedures.
SO 4 Explain the applications of internal control principles to cash disbursements.

12. Cash Controls Cash Disbursements Controls Voucher System
Network of approvals, by authorized individuals, to ensure all disbursements by check are proper.
A voucher is an authorization form prepared for each expenditure.
SO 4 Explain the applications of internal control principles to cash disbursements.