CHAPTER 8
INTERNAL CONTROL AND CASH 内部控制和现金
Define internal control.
Principles of internal control.
Internal control to cash receipts.
Internal control to cash disbursements.
Operation of a petty cash fund.
Control features of a bank account.
Prepare a bank reconciliation.
Main Points
Internal control consists of the plan of organization and all the related methods and measures adopted within a business in order to:
1 safeguard its assets and
2 enhance the accuracy and reliability of its accounting records.
INTERNAL CONTROL 内部控制
Establishment of responsibility 责任的建立: control is most effective when only one person is responsible for a given task.
Segregation of duties职责的分离: the work of one employee should provide a reliable basis for evaluating the work of another employee.
Documentation procedures过程证据化: documents should provide evidence that transactions and events have occurred.
PRINCIPLES OF INTERNAL CONTROL
Physical, mechanical, and electronic controls 物理控制: relate primarily to the safeguarding of assets and enhancing accuracy and reliability of the accounting records.
Independent internal verification 独立的内部验证: the review, comparison, and reconciliation of information from two sources.
Other controls其他控制: bonding of employees who handle cash, rotating轮换 employee’s duties, and requiring employees to take vacations休假.
PRINCIPLES OF INTERNAL CONTROL
Safes, and safety deposit boxes for cash and business papers
Locked warehouses and storage cabinets for inventories and records
Computer facilities with pass key access
PHYSICAL CONTROLS
MECHANICAL AND ELECTRONIC CONTROLS
Alarms to prevent break-ins
Television monitors to deter theft
Time clocks for recording time worked
To obtain maximum benefit from independent internal verification:
1 The verification should be made periodically or on a surprise basis.
2 The verification should be done by an employee who is independent of the personnel responsible for the information.
3 Exceptions should be reported to a management level that can take appropriate corrective action.
INDEPENDENT INTERNAL VERIFICATION
Independent internal verification is often assigned to internal auditors内部审计师.
Internal auditors evaluate the effectiveness of the company’s system of internal control on a continuous basis.
Internal auditing is a professional activity within a company, often with direct access to the board of directors.
INDEPENDENT INTERNAL VERIFICATION
Maintains cash balances Maintains custody of per books cash on hand
Makes monthly comparisons: reports any unreconcilable differences to treasurer
Independent Internal Verification
COMPARISON OF SEGREGATION OF DUTIES PRINCIPLE WITH INDEPENDENT INTERNAL VERIFICATION PRINCIPLE
Accounting Employee A
Assistant Cashier B
Assistant Treasurer C
Segregation of Duties
Costs of establishing control procedures should not exceed their expected benefits according to the concept of reasonable assurance.
The human element is also an important factor. A good system can become ineffective through employee carelessness
Collusion合谋 may result when two or more individuals work together to get around prescribed controls and may significantly impair the effectiveness of a system.
LIMITATIONS OF INTERNAL CONTROL
内部控制的限制
Cash includes coins, currency, checks, money orders, and money on hand or on deposit at a bank or similar depository.
Internal control over cash is imperative in order to safeguard cash and assure the accuracy of the accounting records for cash.
CASH现金
Only designated personnel should be authorized to handle or have access to cash receipts.
Different individuals should:
1 receive cash
2 record cash receipt transactions
3 have custody of cash
INTERNAL CONTROL OVER CASH RECEIPTS 接受现金的内部控制
Documents should include: remittance advices, cash register tapes, deposit slips
Cash should be stored in safes and bank vaults
Access to storage areas should be limited to authorized personnel
Daily cash counts and daily comparisons of total receipts.
All personnel who handle cash receipts should be bonded and required to take vacations.
Control of over-the-counter receipts is centered on cash registers that are visible to customers.
Payments are made by check支票 rather than by cash, except for petty cash 零用现金transactions.
Only specified individuals should be authorized to sign checks.
Different departments or individuals should be assigned the duties of approving an item for payment and paying it.
INTERNAL CONTROL OVER CASH DISBURSEMENTS现金支付的内部控制
Pre-numbered checks should be used and each check should be supported by an approved invoice or other document.
Blank checks空白支票 should be stored in a safe.
1 Access should be restricted to authorized personnel.
2 A check writer machine should be used
to imprint the amount on the check in
indelible ink.
Each check should be compared with the approved invoice before it is issued.
Following payment, the approved invoice should be stamped PAID.
Paid
Electronic Funds Transfer (EFT) is a disbursement system that uses wire, telephone, or computer to send cash from one location to another.
Regular payments such as those for house, car, and utilities are frequently made by EFT.
ELECTRONIC FUNDS TRANSFER 电子资金划账
A petty cash fund is used to pay relatively small amounts.
Operation of the fund, often called an imprest system, involves:
1 establishing the fund,
2 making payments from the fund, and
3 replenishing the fund.
PETTY CASH FUND备用金
Accounting entries are required when:
1 the fund is established,
2 the fund is replenished, and
3 the amount of the fund is changed.
PETTY CASH FUND备用金
Two essential steps in establishing a petty cash fund are
1 appointing a petty cash custodian who will be responsible for the fund and
2 determining the size of the fund.
Ordinarily, the amount is expected to cover anticipated disbursements for a 3-week to 4-week period.
ESTABLISHING THE FUND
To establish a petty cash
100
cash
100
Petty cash
Mar. 1
CR
DR
Account title
Date
General Journal
Laird Company decides to establish a $100 fund on March 1. When the fund is established, a check payable to the petty cash custodian is issued for the stipulated amount.
When the money in the petty cash fund reaches a minimum level, the fund is replenished.
The request for reimbursement is initiated by the petty cash custodian.
The petty cash custodian prepares a schedule of the payments that have been made and sends the schedule, with supporting documentation, to the treasurer’s office.
REPLENISHING THE FUND
5
Miscellaneous expense
38
Freight-in
To replenish petty cash fund
87
cash
44
Postage expense
Mar. 15
CR
DR
Account title
Date
General Journal
On March 15 the petty cash custodian requests a check for $87. The fund contains $13 cash and petty cash receipts for postage $44, freight-in $38, and miscellaneous expenses, $5.
The use of a bank minimizes the amount of currency that must be kept on hand and contributes significantly to good internal control over cash.
A company can safeguard its cash by using a bank as a depository and clearing house for checks received and checks written.
New depositors are required to sign a signature card when opening a checking account.
USE OF A BANK
A check is a written order signed by the depositor directing the bank to pay a specified sum of money to a designated recipient.
Three parties to a check are:
1 Maker (drawer) issues the check
2 Bank (payer) on which check is drawn
3 Payee to whom check is payable
WRITING CHECKS 开支票
Drawer
Bank
Payee
Check
Check
Cash
Bank Statement
A bank statement shows:
1 checks paid and other debits charged against the account
2 deposits and other credits made to the account
3 account balance after each day’s transactions
BANK STATEMENTS银行对账单
BANK STATEMENTS 银行对账单
Bank debit memoranda indicate charges against the depositor’s account.
Example: ATM service charges
Bank credit memoranda indicate amounts that will increase the depositor’s account.
Example: interest income on account balance
MEMORANDA
Reconciliation is necessary because the balance per bank银行余额 and balance per books账上余额 are seldom in agreement due to time lags and errors.
A bank reconciliation should be prepared by an employee who has no other responsibilities pertaining to cash.
RECONCILING THE BANK ACCOUNT 银行户头的调整
Steps in preparing a bank reconciliation:
1 Determine deposits in transit
2 Determine outstanding checks
3 Note any errors discovered
4 Trace bank memoranda to the records
Each reconciling item used in determining the adjusted cash balance per books should be recorded by the depositor
RECONCILING THE BANK ACCOUNT
The bank statement for the Laird Company shows a balance per bank of $15, on April 30, 2002.
On this date the balance of cash per books is $11,.
BANK RECONCILIATON
Adjusted balance per books
30
bank service charge ④
Less: NSF check ③
36
error in recording check ②
1035
Add: collection of notes receivable ,interest ①
Cash balance per books
Adjusted balance per bank statement
3000
Less: outstanding checks
Add: deposit in transit
Cash balance per bank statement
To record collection
50
Interest revenue
1000
Notes receivable
15
Miscellaneous expense
1035
Cash
April 30
CR
DR
Account titles
Date
General Journal ①
Collection of Note Receivable This entry involves four accounts. Interest of $50 has not been accrued and the collection fee is charged to Miscellaneous Expense.
To correct error in recording check
36
Accounts payable
36
Cash
April 30
CR
DR
Account titles
Date
General Journal ②
Book Error An examination of the cash disbursements journal shows that check No. 443 was a payment on account to Andrea Company, a supplier. The check, with a correct amount of $1,226, was recorded at $1,262.
To record NSF check
Cash
Accounts receivable
April 30
CR
DR
Account titles
Date
General Journal ③
NSF Check An NSF check becomes an accounts receivable to the depositor.
To record charge for a printing checks
30
Cash
30
Miscellaneous expense
April 30
CR
DR
Account titles
Date
General Journal ④
Bank Service Charges Check printing charges (DM) and other bank service charges (SC) are debited to Miscellaneous Expense because they are usually nominal in amount.
Cash reported on the Balance Sheet includes:
1 Cash on Hand
2 Cash in banks
3 Petty Cash
Cash is listed first in the balance sheet under the title cash and cash equivalents现金等价物 because it is the most liquid asset.
REPORTING CASH
Cash equivalents are highly liquid investments with maturities of 3 months or less when purchased that can be converted into a specific amount of cash.
Examples include money market funds货币市场基金会, bank certificates of deposit银行存款单, and . Treasury bills and notes国库券.
CASH EQUIVALENTS
Homework
E8-5 , E8-8
