Lecture 7 Cash and Receivables

Lecture 7 Cash and Receivables - Chapter 6: Cash, Temporary...

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Chapter 6: Cash, Temporary Inv. Accounts Receivable and Notes By Steve Fortin, PhD, PhD
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Outline Internal control principles Managing cash Evaluating cash needs Reporting on Cash Temporary Investments Accounts Receivable
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Internal control objectives Optimize the use of resources Prevent and detect errors and irregularities Safeguard assets Enhance the accuracy and reliability of accounting records Ensure that rules and regulations are respected
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Control environment Internal controls should start at the top! Without this, all internal control systems may fail Any control problems should be taken seriously
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Establishment of responsibilities Somebody must be made responsible for an element This way, if a problem occurs, we know where to look This will create an incentive for the person responsible to ensure that things are well controlled.
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Segregation of duties Responsibility for related activities should be assigned to different individuals Responsibility for record keepings should be separate from the responsibility for physical custody of that asset Insurance for key employees Rotation and holidays
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Documentation procedures Proper procedure for documentation increases the likelihood that reports will be accurate: Pre-numbered forms Quick transmission of source documents to the accounting department, etc. Difficult balance between: Enough documents to ensure good control Lean organization that does not get overwhelmed by paper
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Physical, Mechanical, Electronic controls Common sense should still apply Gates, locks, passwords, etc.
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Internal audit The effectiveness of internal control systems should be reviewed periodically by an independent party Problems should be reported to the highest level in the organization Problems should be acted upon
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Cash – Accounting Issues User Relevance: User’s want the fair value of cash Accounting valuation of cash Cash in Canada is usually measured at face value Monetary Unit Assumption If inflation is serious, could be « adjusted » for loss in purchasing power (Argentina) Foreign Currency (FX) is translated at exchange rate in effect at the end of the period G/L are recognized in Net Income
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Bank Reconciliation The use of a bank accounts helps ensure that all transactions are accounted for All receipts are deposited All disbursements are made by checks We then get dual records: One in the company’s books One in the bank’s books Both must be reconciled, due to errors, omission and timing differences
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Case Study – Summer Camp – part 1
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Bank reconciliation - process Fix the “books” Identify the elements not yet booked Bank fees Other fees Automatic payments Errors Etc.
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This note was uploaded on 09/12/2011 for the course MGCR 211 taught by Professor La rocca during the Fall '08 term at McGill.

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Lecture 7 Cash and Receivables - Chapter 6: Cash, Temporary...

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