9_Cash_Internal Control_Bank Reconciliation.pdf

9_Cash_Internal Control_Bank Reconciliation.pdf - 1 Seda Oz...

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Seda Oz October 26 – 28, 2015 Copyright @ 2015 Seda Oz. All Rights Reserved. 1
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Internal control consists of all of the related methods and measures adopted within a business to: Safeguard assets from employee theft, robbery, and unauthorized use Enhance the accuracy and reliability of its accounting records by reducing the risk of errors ( unintentional mistakes ) and irregularities ( intentional mistakes and misrepresentations ) in the accounting process To safeguard assets and enhance the accuracy and reliability of its accounting records, companies follow 6 internal control principles Copyright @ 2015 Seda Oz. All Rights Reserved. 2
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Establishment of Responsibility Assignment of responsibility to specific individuals Establishing responsibility includes the authorization and approval of transactions Segregation of Duties Work of one employee should provide a reliable basis for evaluating the work of another employee Two common applications of this principle: The responsibility for related activities should be assigned to different individuals The responsibility for record keeping for an asset should be separate from the physical custody of the asset When one individual is responsible for all of the related activities, the potential for errors and irregularities is increased Related purchasing activities include ordering merchandise, receiving goods, and paying (or authorizing payment) for merchandise Related sales activities include making a sale, shipping (or delivering) the goods to the customer, and billing the customer Record Keeping Separate from Physical Custody One employee maintains the record of the assets that should be on hand and a different employee has physical custody of the assets Copyright @ 2015 Seda Oz. All Rights Reserved. 3
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Documentation Procedures Documents provide evidence that transactions and events have occurred Source documents for accounting entries should be promptly forwarded to the accounting department to help ensure timely recording of the transaction and event Physical, Mechanical, and Electronic Controls Physical controls relate primarily to the safeguarding of assets Safes, vaults, and safety deposit boxes for cash and business papers Locked warehouses and storage cabinets for inventory and records Computer facilities with pass key access or fingerprint or eyeball scans Alarms to prevent break-ins Television monitors and garment sensors to deter theft Time clocks for recording time worked Copyright @ 2015 Seda Oz. All Rights Reserved. 4
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Independent Internal Verification Review, comparison, and reconciliation of data prepared by employees Verification should be made periodically or on a surprise basis Verification should be done by an employee independent of the personnel responsible for the information Discrepancies and exceptions should be reported to a management level that can take appropriate corrective action
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