1. Internal Control and Accounting for Cash Chapter Six Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

2. 6-1 Key Features of Internal Control 1.Separation of Duties 2.Quality of Employees 3.Bonded Employees 4.Required Absences 5.Procedures Manual 6.Authority and Responsibility 7.Prenumbered Documents 8.Physical Control 9.Performance Evaluations

3. 6-2 Accounting for Cash Controlling Cash Cash receipts should be recorded immediately upon receipt and deposited intact daily. Cash payments should be made by prenumbered check. Up to date signature card should be maintained. A deposit ticket should be used for all deposits. A monthly bank reconciliation should be prepared by an independent party.

4. 6-3 Reconciling the Bank Statement The bank reconciliation reports on the differences between the balance on the bank statement and the balance in the general ledger cash account. The reconciliation results in the true cash balance that will appear on the balance sheet.

5. 6-4 Reconciling the Bank Statement If an error is found on the bank statement, an adjustment for it is made to the unadjusted bank balance to determine the true cash balance. An error made on our books requires an adjusting journal entry to correct.

6. 6-5 Bank Reconciliation Green Shades Resorts, Inc. is preparing the bank reconciliation for the month of September. 1.The Sept 30 th balance on the bank statement is $3,516.45, and the Cash general ledger balance on this date is $3,361.22. 2.There was a deposit in transit in the amount of $724.11. 3.The bank erroneously deducted a $25 check drawn on the books of Green Valley Resorts from our account. 4.At September 30 th three checks are outstanding. Check 639 dated 9/18 for $13.75; Check 646 dated 9/20 for $29.00; and Check 672 dated 9/27 for $192.50. More Information

7. 6-6 Bank Reconciliation 5.During the month of September the bank collected an account receivable for us in the amount of $940.00. 6.A check actually written for $36.45 for supplies was erroneously recorded in our records by the bookkeeper as $63.45. 7.The bank assessed a service charge of $8.40 for September. 8.We deposited a NSF check in the amount of $289.51. Let’s prepare the bank reconciliation

8. 6-7 Bank Reconciliation

9. 6-8 Adjusting the Books Every reconciling item that appears on the unadjusted book balance section requires a journal entry to adjust the general ledger cash balance to the true cash balance.

10. 6-9 Cash Short and Over When using a cash register, employees sometimes make mistakes in collecting cash or making change for customers. If the cash register does not reconcile by a small amount at the end of the day, we use an account called cash short and over to force a balance. Assume a cash register was to have a balance of $500, but contained only $499 at the end of the day.

11. 6-10 Using Petty Cash Funds A petty cash fund is used to make small expenditures that cannot wait for the formal check- writing process. The fund is operated on an imprest basis. This means that when the fund gets low on cash it is replenished. The petty cashier is always responsible for the cash in the fund. This is an excellent internal control.

12. 6-11 Using Petty Cash Funds Record expenses paid from the petty cash fund. Treasurer prepares a $216.00 check payable to the petty cashier. Petty cashier takes the check to the bank and gets $216.00 cash for the fund. The fund is now returned to its $300 balance.

13. 6-12 The Financial Analyst How can a financial analyst know that a company really did follow GAAP? Certified Public Accountants

14. 6-13 Materiality and Financial Audits Auditors do not guarantee that financial statements are absolutely correct—only that they are materially correct. Material Item An error, or other reporting problem, that would influence the decision of an average prudent investor.

15. 6-14 Types of Audit Opinions UnqualifiedAdverse QualifiedDisclaimer