ch09 - Internal Control and Cash C H A P T E R 9 Acid Test...

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Unformatted text preview: Internal Control and Cash C H A P T E R 9 Acid Test Acid Test Bank rec Petty Cash Petty Cash Internal Control Internal Control Learning Objectives 1. Define, explain the purpose, and identify the principles of internal control. 2. Define cash and explain how it is reported. 3. Apply internal control to cash. 4. Explain and record petty cash fund transactions. 5. Explain and identify banking activities and the control feature they provide. Learning Objectives 1. Prepare a bank reconciliation and journalize any resulting adjustment(s). 2. Compute the acid-test ratio and explain its use as an indicator of a company’s liquidity. (Appendix 9A) 3. Assignments:1.Pr9-5A,pg498-Bank Rec. 2.Pr9-2A,pg495-Petty cash 3.Pr9-6A,pg499-Bank Rec. Learning Objectives INTERNAL CONTROL OVER CASH PAGE 462 PETTY CASH FUND IMPRESTED PAGE 468 BANK RECONCILIATION PAGE 472 ACID TEST RATIO PAGE 486 Internal Control System All policies and procedures used to : Protect assets Ensure reliable accounting Promote efficient operations Encourage adherence to company policies Fundamental Principles of Internal Control 1. Ensure transactions and activities are authorized. 2. Maintain adequate records. 3. Insure assets. 4. Separate recordkeeping and custody of assets. 5. Establish a separation of duties Fundamental Principles of Internal Control 1. Apply technological controls. 2. Perform internal and external audits. Internal controls will vary based on the nature and size of the organization . Human Error Negligence Fatigue Misjudgment Confusion Human Fraud Intent to defeat internal controls for personal gain Limitations of Internal Control The costs of internal controls must not exceed their benefits . Costs Benefits Limitations of Internal Control Cash Is an important asset for every company. Control of cash on hand and access to it is critical. Cash includes: Currency Coins Deposits in bank accounts Other items acceptable for deposit Liquidity Refers to how easily an asset can be converted into another asset or used in paying for services or obligations. Examples: Cash- highly liquid A specialized piece of equipment - not very liquid. Internal Controls for Cash Guidelines: 1. Separate handling of cash from recordkeeping of cash. 2. Deposit cash receipts daily. 3. Make cash disbursements by cheque. All expenditures should be made by cheque. The only exception is for small payments from petty cash. Separate authorization, cheque signing and recordkeeping duties. Apply a voucher system. Practice Practice Control of Cash Disbursements Bank Rec Good internal control procedures require cash disbursements be made by cheque....
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This note was uploaded on 08/22/2009 for the course ACCT 1101 taught by Professor Davescott during the Fall '05 term at Niagara College.

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ch09 - Internal Control and Cash C H A P T E R 9 Acid Test...

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