Chapter 6 Review. Reporting and Analyzing Cash & Internal Controls

Financial Accounting

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Unformatted text preview: Click to edit Master subtitle style 04/03/2010 Financial Accounting Chapter 6 R epor ting and A nalyzing Cash and I nter nal Controls Chapter 6 04/03/2010 Financial Accounting Chapter 6 I nter nal Contr ol & I ts Managers use an internal control system to monitor and control business activities. An internal control system consists of the policies & procedures managers use to: - 22 Financial Accounting Chapter 04/03/2010 Financial Accounting Chapter 6 Cash, Cash Equivalents, Liquidity = a companys ability to pay for its short-term obligations. l Liquid assets: 1. Cash : currency and coins, checking accounts(demand deposits) many savings accounts (time deposits) Cash also includes: customers &cashiers checks, money orders. 33 Financial Accounting Chapter 04/03/2010 Financial Accounting Chapter 6 Cash Equivalents Def: short-term, highly liquid investment assets. l Two criteria: (1) readily convertible to a known cash amount and (2) sufficiently close to their due date so that their market value is not sensitive to interest rate changes . Note: Only investments purchased within three months of their due date usually satisfy these criteria. 44 Financial Accounting Chapter 04/03/2010 Financial Accounting Chapter 6 Contr ol of Cash 55 Financial Accounting Chapter 04/03/2010 Financial Accounting Chapter 6 Cash Over and Shor t Sometimes errors in making change are discovered from differences between the cash in a cash register and the record of the amount of cash receipts. l This difference is reported in the Cash Over and Short account, also called Cash Short and Over 66 04/03/2010 Financial Accounting Chapter 6 Example Cash Over Cash registers record shows $550 but the count of cash in the register is $555 77 04/03/2010 Financial Accounting Chapter 6 Example Cash Shor t Cash registers record shows $625 but the count of cash in the register is $621 88 04/03/2010 Financial Accounting Chapter 6 Voucher System of Def: set of procedures and approvals designed to control cash disbursements and the acceptance of obligations. l Establishes procedures for: Verifying, approving, and recording obligations for eventual cash disbursement. Issuing checks for payment of verified, approved, and recorded obligations. 99 04/03/2010 Financial Accounting Chapter 6 Petty Cash System of petty cash disbursements are small payments required for items such as postage courier fees minor repairs low-cost supplies 1010 04/03/2010 Financial Accounting Chapter 6 I llustr ating a petty cash Z-Mart establishes a petty cash fund on November 1. A $75 check is drawn and cashed. 1111 Point : Reducing or eliminating a petty cash fund would require a credit to Petty Cash. 04/03/2010 Financial Accounting Chapter 6 Petty Cash Payments On November 27: l $26.50 cash payment for tile cleaning, l only $3.70 cash remains in the fund....
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Chapter 6 Review. Reporting and Analyzing Cash & Internal Controls

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