ch08 - CHAPTER 8 Internal Control and Cash STUDY OBJECTIVES...

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CHAPTER 8 Internal Control and Cash STUDY OBJECTIVES 1. DEFINE INTERNAL CONTROL. 2. IDENTIFY THE PRINCIPLES OF INTERNAL CONTROL. 3. EXPLAIN THE APPLICATIONS OF INTERNAL CONTROL PRINCIPLES TO CASH RECEIPTS. 4. EXPLAIN THE APPLICATIONS OF INTERNAL CONTROL PRINCIPLES TO CASH DISBURSEMENTS. 5. DESCRIBE THE OPERATION OF A PETTY CASH FUND. 6. INDICATE THE CONTROL FEATURES OF A BANK ACCOUNT. 7. PREPARE A BANK RECONCILIATION. 8. EXPLAIN THE REPORTING OF CASH. 8-1
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CHAPTER REVIEW Internal Control 1. (S.O. 1) Internal control consists of the plan of organization and all the related methods and measures adopted within a business to (a) safeguard its assets and (b) enhance the accuracy and reliability of its accounting records. 2. (S.O. 2) An essential characteristic of internal control is the establishment of responsibility to specific employees. Control is most effective when only one person is responsible for a given task. 3. The rationale for segregation of duties is this: The work of one employee should, without a du- plication of effort, provide a reliable basis for evaluating the work of another employee. 4. The responsibility for related transactions should be assigned to different individuals, and the responsibility for establishing the accountability for an asset should be separate from the physical custody of that asset. 5. Documentation procedures provide evidence that transactions and events have occurred. 6. Physical, mechanical, and electronic controls relate primarily to the safeguarding of assets and include such measures as safes for the storage of cash prior to deposit, bank vaults for the deposit of cash, safety deposit boxes for the storage of important business papers, fences around storage areas, and locked warehouses for inventories. 7. Mechanical and electronic controls include electronic burglar alarms, television monitors, sensors on garments, cash registers, time clocks and built-in hardware controls. 8. Most systems of internal control provide for independent internal verification. This principle involves the review, comparison, and reconciliation of data prepared by one or several em- ployees. 9.
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ch08 - CHAPTER 8 Internal Control and Cash STUDY OBJECTIVES...

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