Fin-Acctg7-SM-Ch04

Fin-Acctg7-SM-Ch04 - Chapter 4 Internal Control and Cash...

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Chapter 4 Internal Control and Cash Short Exercises (5 min.) S 4-1 1. Public companies must issue an internal control report, and the outside auditor must evaluate the client’s internal controls. 2. The Public Accountancy Oversight Board oversees the auditors of public companies. 3. An accounting firm may not both audit a public client and also provide certain consulting services for the same client. 4. The law imposes stiff penalties for violators—25 years for securities fraud and 20 years for an executive who makes a false sworn statement. Chapter 4 Internal Control and Cash 227
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(5-10 min.) S 4-2 1. Control environment — Top managers must set the “tone at the top” to establish a control environment. 2. Risk assessment — Each company must evaluate its own risks, based upon its particular line of business. 3. Control procedures — Specific procedures are needed for a good system of internal control. 4. Monitoring of controls — Auditors can monitor a company’s actions and its financial statements. 5. Information system — Accurate information is essential for success in business. Student responses may vary for the descriptions . Financial Accounting 7/e Solutions Manual 228
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(5-10 min.) S 4-3 Separation of duties is essential for safeguarding assets. The person who has custody of an asset should not also account for the asset. A person who performs both duties can steal the asset and hide the theft by making a bogus entry in the accounting records. Student responses may vary. (5-10 min.) S 4-4 Electronic Device Objective of Internal Control 1. Electronic sensor for 1. Safeguard assets merchandise 2. Bar codes 1. Promote operational efficiency 2. Ensure accurate accounting records 3. Surveillance cameras 1. Safeguard assets 2. Encourage employees to follow company policy Chapter 4 Internal Control and Cash 229
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(10 min.) S 4-5 Reitmeier Corp. Bank Reconciliation August 31, 20XX BANK BOOKS Balance, August 31 $3,405 Balance, August 31 $2,500 Add: Add: Deposit in transit 500 Bank collection 550 3,905 Interest revenue 10 3,060 Less: Less: Service charge (20) Outstanding checks (900 ) NSF check (35 ) Adjusted bank balance $3,005 Adjusted book balance $3,005 Reitmeier has cash of $3,005. (5 min.) S 4-6 Aug . 3 1 Cash………………………………………. . 550 Accounts Receivable………………. .. 550 Collection on account. 3 1 Cash………………………………………. . 10 Interest Revenue……………………. .. 10 Interest earned on bank balance. 3 1 Miscellaneous Expense………………. .. 20 Cash……………………………………. 20 Bank service charge. 3 Accounts Receivable…………………… 35 Financial Accounting 7/e Solutions Manual 230
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1 Cash……………………………………. . 35 NSF check. (5 min.)
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Fin-Acctg7-SM-Ch04 - Chapter 4 Internal Control and Cash...

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