Professional Documents
Culture Documents
6 Reporting and Analyzing Cash and Internal Controls
6 Reporting and Analyzing Cash and Internal Controls
Reduced More
Processing Extensive Testing
Errors of Records
Crucial
Limited
Separation of
Evidence of
Duties
Processing
Increased
e-commerce
Negligence Intent to
Fatigue defeat internal
Misjudgment controls for
Confusion personal gain
Benefits Costs
C2 Control of Cash
Cash Equivalents
Short-term, highly liquid investments that are:
1. Readily convertible to a known cash amount.
2. Close to maturity date and not sensitive to
interest rate changes.
Inventory Cash
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008
6-13
P1
Control of Cash Disbursements
Voucher
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008
6-17
P2
Operating a Petty Cash Fund
Petty Cash
Company Petty
Cashier Cashier
Petty Cash
Company Petty
Cashier Cashier
Accountant
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008
6-20
Petty
Petty Cash
Cashier
39¢
Stamps Courier
$45 $80
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008
6-22
Petty cash
receipts with
either no Receipts
Petty
signature or a Cashier
forged signature
usually indicate
misuse of petty 39¢
P2
Receipts
$125
To reimburse
Company petty cash fund Petty
Cashier Cashier
Accountant
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008
6-24
P2
Petty Cash Example
a. $260.20
b. $262.20
c. $139.80
d. $137.80
Let’s prepare the journal entry to replenish the petty cash fund.
Dr. Cr.
July 31 Travel Expense 79.30
Entertainment Expense 93.42
Postage Expense 55.00
Office Supplies Expense 32.48
Cash Over and Short 2.00
Cash 262.20
Electronic
Bank
Checks Funds
Statements
Transfer
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008
6-29
P3 Bank Reconciliation
P3 Reconciling Items
Book Balance
Bank Statement Balance • Add: Collections
Add: made by the bank.
Deposits in transit. • Add: Interest earned
Deduct: on checking account.
Outstanding • Deduct:
Checks Nonsufficient funds
Add or Deduct: check (NSF).
Bank errors. • Deduct: Bank
service charge.
• Add or Deduct:
Book errors.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008
6-31
P3 Bank Reconciliation
Two sections:
1. Reconcile bank statement balance to
the adjusted bank balance.
2. Reconcile book balance to the adjusted
book balance.
The adjusted balances should be equal.
Dr. Cr.
July 31 Cash 30
Interest revenue 30
GENERAL LEDGER
Account: Cash Acct. No. 101
Balance
Date Item PR Debit Credit DR (CR)
July 31 Balance 7,430
31 Adjusting entry 30 7,460
31 Adjusting entry 253 7,207
Days’
Accounts Receivable
Sales = × 365
Net Sales
Uncollected
End of Chapter 6