1. Chapter 2 Reporting and Analyzing Cash and Internal Controls
Pr. SAMLAL Zoubida

2. Internal Control – All Policies and Procedures Used to . . .
Protect assets
Ensure reliable accounting
Promote efficient operations
Urge adherence to company policies

3. Principles of Internal Control
Establish responsibilities
Maintain adequate records
Insure assets and bond employees

4. Principles of Internal Control
Separate recordkeeping and custody over assets
Divide responsibility for related transactions

5. Principles of Internal Control
Apply technological controls
Perform regular and independent reviews

6. Technology and Internal Control
Reduced
Processing
Errors
More
Extensive Testing
of Records
Limited
Evidence of
Processing
Crucial
Separation of
Duties

7. Limitations of Internal Control
Human Error
Negligence
Fatigue
Misjudgment
Confusion
Human Fraud
Intent to
defeat internal
controls for
personal gain

8. Limitations of Internal Control
The costs of internal controls
must not exceed their benefits.
Benefits
Costs

9. Cash, Cash Equivalents, and Liquidity
Currency, coins and amounts on deposit in bank account, checking accounts, and some savings accounts.

10. Cash, Cash Equivalents, and Liquidity
Cash Equivalents are short-term, highly liquid investments that are:
Readily convertible to a known cash amount.
Close to maturity date and not sensitive to interest rate changes.

11. Cash, Cash Equivalents, and Liquidity
How easily an asset can be converted into another asset or be used in paying for services or obligations.
Inventory
Cash

12. Control of Cash Segregate handling of cash from recordkeeping of cash.
Cash receipts are promptly (daily) deposited in a bank.
Cash disbursements are made by check.

13. Control of Cash Receipts
Over-the-Counter Cash Receipts
Cash register with locked-in record of transactions.
Compare cash register record with cash reported.

14. Control of Cash Receipts
Cash Receipts By Mail
Two people open the mail.
Money to cashier’s office
List to accounting dept.
Copy of list filed

15. Control of Cash Disbursements
All expenditures made by check. The only exception is for small payments from petty cash.
Separate authorization, check signing and recordkeeping duties.
Apply a voucher system.

16. A Voucher System of Control
Establishes procedures for:
Accepting obligations resulting in cash disbursements
Verifying, approving and recording obligations
Issuing checks for payment of verified, approved and recorded obligations

17. A Voucher System of Control
Establishes procedures for:
Requiring obligations be recorded when incurred.
Treating each purchase as an independent transaction.

18. Voucher System of Control
Check
Cashier’s Office
Supplier (Vendor)
Accounting Dept.
Invoice Approval
Cashier’s Office
Accounting, Requesting,
Purchasing Depts.
Receiving Dept.
Receiving Report
Supplier (Vendor)
Invoice
Accounting Dept.
Purchasing Dept.
Purchase Order
Supplier (Vendor)
Purchase Requisition
Purchasing and
Accounting Depts.
Requesting Dept.
Voucher

19. Purchasing Accounting One copy of purchase requisition used to
prepare the
voucher.
Requesting
Department

20. Retained in Purchasing
Requesting Dept.
Copy 3
Accounting
Copy 2
Vendor
Copy 1
Retained in Purchasing

21. Inside of a Voucher

22. Outside of a Voucher

23. Petty Cash System of Control
Small payments required in most companies for items such as postage, courier fees, repairs and supplies.

24. Operating a Petty Cash Fund
Petty Cashier
Treasurer and
Accountant
Petty Cashier

25. Operating a Petty Cash Fund
Petty Cashier
Petty Cashier

26. Operating a Petty Cash Fund
Receipts
Petty Cashier
Petty Cashier
Courier
Courier
34¢
Stamps
34¢
Stamps

27. Operating a Petty Cash Fund
Receipts
$125
To reimburse
petty cash fund
Treasurer and
Accountant
Petty Cashier
We use a Cash
Over and Short
account if needed.

28. Petty Cash Example
Tension Co. maintains a petty cash fund of $400. The following summary information was taken from petty cash vouchers for July:
Travel Expenses $79.30
Customer Business Lunches
Express Mail Postage
Miscellaneous Office Supplies
Let’s look at replenishing the fund if the balance on July 31 was $

29. Petty Cash Example
The journal entry to replenish the petty cash fund is:

30. Accounting systems

31. Accounting system
objective : satisfy taxation requirements and not the financial control and management of the business.
accounting software and the financial control provide an early warning system but also indicates where management action is required
Accounting software can be a simple system of producing a monthly profit and loss account and for many small businesses that may be sufficient as the smaller the business the more intimate knowledge the owner has of its finances.
By using a financial accounting system to critically review the business finances on a regular basis provides both opportunities for sales growth and higher profit levels but also serves as an early warning system of business problems.

32. Problems in accounting system
No care about transactions are not money value
Conflict between accounting principles
Result declaration

33. Enterprise resource planning (ERP)systems
It is to attempt to integrate several data sources and processes of an organisation into a unified system
It will use multiple components of computer software and hardware to achieve the integration

34. ERP

35. Disadvantages Custamization is limited It is very expensive
Integrated links need high accuracy to work effectively
Resistance insharing sensitive internal information between departmentscan reduce the effectivenessof the software.
Large organizations may have multiple depardments with seperate ,indepentent resources, missions and consolitation into a single enterprisemay limited benefits
This may too complex measured against the actual needs of the customer.

36. Constraints Objective principle Materiality principle
Consistancy principle
Prudent principle