This preview shows pages 1–3. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: Chapter 9 - Internal control and cash CHAPTER OVERVIEW In Chapter 8, you learned about an accounting information system. This chapter follows that discussion by introducing you to internal control and the processes a business follows to control the organisation’s assets. As cash is the most liquid asset, this chapter applies internal control concepts to cash. However, internal control applies to all assets - topics covered in the next two chapters (and previously in Chapter 6). The learning objectives for this chapter are to: 1. Define internal control. 2. Understand how to achieve good internal control. 3. Prepare a bank reconciliation and the related journal entries. 4. Apply internal controls to cash receipts. 5. Apply internal controls to cash payments. 6. Make ethical business judgements. Appendix to Chapter 9: The voucher system. CHAPTER REVIEW Objective 1 - Define internal control. Internal control is a system of methods and procedures designed to safeguard assets, ensure reliable accounting records, promote efficiency, and encourage adherence to company policies. Internal control includes administrative controls and accounting controls. Objective 2 – Understand how to achieve good internal control. An effective system of internal control has four characteristics: 1. Competent, reliable, and ethical personnel . Paying competitive salaries, training people thoroughly, and providing adequate supervision help to promote competence. 2. Assignment of responsibilities . All duties to be performed must be identified, and responsibility for the performance of those duties must be assigned to appropriate people. 3. Proper authorisation . An organisation generally has a written set of rules that outlines approved procedures. Proper authorisation must be obtained for deviations from standard policies. 4. Separation of duties . Separation of duties is designed to limit the possibility of fraud or theft in the handling of assets. The company must have: a) separation of operations from accounting b) separation of the custody of assets from accounting c) separation of the authorisation of transactions from the custody of related assets d) separation of duties within the accounting function. Auditors evaluate the system of internal control to estimate the reliability of the accounting systems. Auditors also help to spot areas where improvements in internal control can be made. Internal auditors are employees of the company. External auditors are employed by public accounting firms and are hired by a business to audit its books. Business documents and records are designed according to each company's needs. Source documents and records include sales invoices, purchase orders, and special journals. Good internal control Internal control and cash 1 requires documents to be pre-numbered. A gap in the numbered sequence will call attention to a missing document....
View Full Document
This note was uploaded on 10/10/2010 for the course ECON 7300 at University of Sydney.