Chap 8 Outline[1]

Chap 8 Outline[1] - Chapter Outline I II Internal Control A...

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Chapter Outline Notes I. Internal Control A. Purpose of Internal Control An internal control system consists of policies and procedures managers use to: 1. Protect assets. 2. Ensure reliable accounting. 3. Promote efficient operations. 4. Urge adherence to company policies. B. Principles of Internal Control: 1. Establish responsibilities. 2. Maintain adequate records. 3. Insure assets and bond key employees. 4. Separate recordkeeping from custody of assets. 5. Divide responsibility for related transactions. 6. Apply technological controls. 7. Perform regular and independent reviews. C. Technology and Internal Control Technology provides quick access to databases and information. Examples of how technology impacts internal control: 1. Reduces processing errors. 2 Allows more extensive testing of records. 3. Limits hard copy evidence of processing steps but can electronically store additional evidence. 4. Requires that crucial separation of responsibilities be carefully distributed among fewer employees. 5. Increased e-commerce increases risks of credit card theft, computer viruses and online impersonation. D. Limitations of Internal Control 1. Human error and/or human fraud 2. Cost-benefit principle —the costs of internal controls must not exceed their benefits. II. Control of Cash —Basic guidelines for control of cash and cash equivalents include: handling of cash must be separate from recordkeeping of cash, cash receipts are promptly deposited in bank, and disbursements of cash are by check. A. Cash, Cash Equivalents, and Liquidity 1. Liquidity refers to a company's ability to pay for its near term obligations.
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Chapter Outline Notes 2. Cash includes currency and coins, deposits in bank and checking accounts (called demand deposits), many savings accounts (called time deposits), and items that are acceptable for deposit in those accounts (customers checks, cashier checks, certified checks, and money orders). 3.
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Chap 8 Outline[1] - Chapter Outline I II Internal Control A...

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