LECTURE NOTES FOR CHAPTER 8
Chapter 8 deals with several topics:
The Sarbanes Oxley Act, (known as SOX), internal
control, reconciling a bank statement, and the petty cash fund.
You are not going to
college to learn how to maintain a petty cash fund (The book calls it “Special Purpose
Cash Fund, discussed on page 371) so SKIP THAT TOPIC. SOX and internal control are
strictly “read and remember” topics.
There is nothing there for me to explain or for you
It is simply, I repeat, “Read and remember”.
To make sure the material
did in fact, soak in, I encourage you to answer the following questions at the end of the
chapter: EX. 7,8,9,10,11,and 18. After you have answered those questions, compare your
answers to the answers that I have posted in the “Course Documents” section.
THIS IS A
SUGGESTION, NOT A REQUIREMENT. Do not send me your answers; they are
strictly for your benefit.
Therefore, all that is left for me to cover in these notes is the
This should be a very simple topic because most of you reconcile
your own bank statement every month (don’t you)
and reconciling the bank statement of
some huge company is done the same way
that you reconcile your own bank statement.
Just between you and me, I feel silly asking a class full of adults to read about how to
reconcile a bank statement because I’m betting you already know how, but my boss says
we have to cover the topic, so cover it we shall. Should be a bunch of easy points on the
Before we start the bank reconciliation, here are some odds and ends that you must BE
SURE to learn:
Cash- You probably think you know what cash is, but do you know the accounting
Read the bottom of page 360 to be sure.
EFT-Top of page 364
Voucher – Bottom of page 363
On page 373, study: cash equivalents, line of credit, and compensating balance.
Now, back to the bank reconciliation.
Once upon a time, the Cash account in our
company’s ledger said that that we had $241 in the bank.
The Cash account appeared as
However, when we received the bank statement, the bank said we only had $81 in the
Obviously, the big blockbuster question is “Which number is correct?” In all
probability, neither number is correct!
This is due to the fact that probably there is some
information that the company has about the account that the bank doesn’t have yet, and
probably, the bank has information about the account that the company doesn’t have yet.