Presentation is loading. Please wait.

Presentation is loading. Please wait.

Cash and Internal Control

Similar presentations


Presentation on theme: "Cash and Internal Control"— Presentation transcript:

1 Cash and Internal Control
Chapter 5 Cash and Internal Control Financial Accounting, Alternate 4e by Porter and Norton

2 Gap Inc. Consolidated Balance Sheets (partial)
ASSETS (in thousands) Feb. 1, Feb 2, 2002 Current Assets: Cash and equivalents $3,388,514 $1,035,749 Merchandise inventory 2,047, ,768,613 Other current assets , ,685 Total current assets $5,739,725 $3,136,047 higher

3 Gap Inc. Consolidated Balance Sheets (partial)
ASSETS (in thousands) Current Assets: Cash and equivalents Key to classification as cash: readily available to pay debts

4 Cash Coin & currency Checking, savings & money market accounts
Undeposited, cashier, and certified checks Pay to the order of: ABC Co.

5 Cash Equivalents and the Statement of Cash Flows
Gap Inc.’s Consolidated Balance Sheets (partial) (in thousands) Feb. 1, Feb 2, 2002 Current Assets: Cash and equivalents $3,388,514 $1,035,749 Merchandise inventory 2,047, ,768,613 Other current assets , ,685 Total current assets $5,739,725 $3,136,047 Gap Inc.’s Consolidated Statement of Cash Flows (partial) Year ended Year ended (in thousands) Feb. 1, Feb 2, 2002 Net increase (decrease) in cash and equivalents 2,352, ,955 Cash and equivalents at beg. of year 1,035, ,794 Cash and equivalents at end of year $3,388,514 $1,035,749

6 Cash Equivalents Readily convertible to cash
Original maturity to investor of 3 months or less 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 28 29 30 31 27 Commercial paper U.S. Treasury bills Certain money market funds

7 Cash Management Necessary to ensure company has neither too little nor too much cash on hand Tools: Cash Flows Statement Cash Budgets Bank Reconciliations Petty Cash Funds

8 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

9 Bank Reconciliation - Step 1
Trace deposits on bank statement to books. Identify deposits in transit. Add to bank balance. Deposits in Transit: Late period deposits not yet reflected on bank statement

10 Example of Reconciliation
Bank Statement Adjustments: Deposits Balance per statement, June 30 $ 3,308.59 Add: Deposit in transit 10 1

11 Bank Reconciliation - Step 2
Trace checks cleared by bank to books. Identify outstanding checks. Subtract from bank balance. Outstanding checks: Checks written but not yet presented to bank ABC Co. Pay to the order of: XYZ Co.

12 Example of Reconciliation
Bank Statement Adjustments: Checks Outstanding Balance per statement, June 30 $3,308.59 Add: Deposit in transit Deduct: Outstanding checks: Check No. 496 $ Check No Check No (717.84) Adjusted balance, June $3,233.05 12 1

13 Bank Reconciliation - Step 3
List all other additions (credit memoranda) shown on the bank statement. Add to book balance. Credit memoranda: Interest earned, customer notes collected

14 Example of Reconciliation
Cash Account Adjustments: Credit Memoranda Balance per books, June $ 2,895.82 Add: Note collected $500.00 Interest on note Interest earned Recording error, # 14 2

15 Bank Reconciliation - Step 4
List all other subtractions (debit memoranda) shown on the bank statement. Subtract from book balance. Date Non-Sufficient Funds Debit memoranda: NSF checks, service charges, etc.

16 Example of Reconciliation
Cash Account Adjustments: Debit Memoranda Balance per books, June $ 2,895.82 Add: Note collected $500.00 Interest on note Interest earned Recording error, # Deduct: NSF check $245.72 Collection fee – note Service charge (282.22) Adjusted balance, June $ 3,233.05 2

17 Bank Reconciliation - Step 5
Identify errors made by the bank or the company in recording transactions during the period.

18 Bank Reconciliation - Step 6
Use the information collected in Steps to prepare the bank reconciliation. Bank Reconciliation Balance per bank $$$ : Adjusted balance $$$ Balance per books $$$ Adjusted balances for book and bank must agree

19 Example of Reconciliation
Bank Statement Adjustments Balance per statement, June $ 3,308.59 : Adjusted balance, June $ 3,233.05 Cash Account Adjustments Balance per books, June $ 2,895.82 : Adjusted balance, June $ 3,233.05 19 1

20 Bank Reconciliation Adjusting Entries
Balance per bank $$$ : Adjusted balance $$$ Balance per books $$$ Book adjustments are the basis for adjusting entries

21 Petty Cash Dr. Cr. RECEIPT RECEIPT Paycheck for Jane Doe Date
Dept. of Treasurer Jane Doe RECEIPT Dr. Cr. RECEIPT

22 Responsibility for Internal Control
Auditors Audit Committee of Board of Directors External Auditors Management

23 Internal Control Control Environment Internal Accounting Control
Procedures Accounting System

24 The Control Environment
Management’s competence and operating style Personnel policies and practices Influence of board of directors

25 The Accounting System Methods and records used to report transactions and maintain financial information Can be manual or automated systems or a combination of both Use of journals is an integral part of any system

26 Internal Control Procedures
Independent Review and Appraisal Independent Verification Design & Use of Business Documents Safeguarding Assets and Records Proper Authorizations Segregation of Duties 26

27 Proper Authorizations
Authority and responsibility go hand in hand LOAN APPROVED

28 Segregation of duties Separate physical custody from the accounting for assets

29 Independent Verification
One individual or department acts as a check on the work of another

30 Safeguarding Assets and Records
Protect assets and accounting records from loss, theft, unauthorized use, etc.

31 Independent Review and Appraisal
Provide for periodic review and appraisal of the accounting system and the people operating it. Audit Report

32 Design and Use of Business Documents
Capture all relevant information about a transaction and assist in proper recording and classification. Are properly controlled

33 Limitations on Internal Control
No system is entirely foolproof Employees in collusion can override the best controls Cost vs. benefit tradeoff

34 Controls Over Cash All cash receipts deposited intact daily
All cash disbursements made by check Paycheck for Dept. of Treasurer John Doe Date Jane Doe

35 Controls Over Cash Received Over the Counter
Cash registers Prenumbered customer receipts Investigation of recurring discrepancies

36 Controls Over Cash Received in the Mail
Two employees open mail Prelist prepared Monthly customer statements

37 Computerized Business Documents and Internal Control
Appendix Computerized Business Documents and Internal Control

38 Controls over Cash Disbursements: Business Documents
Purchase Requisition Receiving Report Purchase Order Invoice Approval Purchase Invoice Check prepared

39 End of Chapter 5


Download ppt "Cash and Internal Control"

Similar presentations


Ads by Google