Chapter 6 - Chapter 6: Cash and Internal Control Cash and...

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Chapter 6: Cash and Internal Control
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Cash and Cash Equivalents Definition of cash Cash Management Internal control of cash Bank Reconciliation Timing differences that affect bank balance New information that affects our accounts (needs a journal entry to record) Reconcile (equate) the two adjusted balances
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What Constitutes Cash? Classification as cash indicates that an item is readily available to pay debts. Cash equivalents are readily convertible to known amount of cash original maturity to the investor of less than three months treasury bills, commercial paper, money market funds not shares maturity and amount Both cash and cash equivalents included as cash on statement of cash flows
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Control Over Cash Cash management is necessary to guarantee that neither too much nor too little cash is on hand. Internal control over cash is needed to guard against theft and other abuses of cash Cash alone does not earn anything, but must be invested A bank statement details all activity in an account each month Canceled checks an outstanding check was written but not yet presented for payment, and therefore is not on statement Deposits on company’s records, a deposit in transit was made in the last day or two of the month, doesn’t show up on statement NSF check ( N ot S ufficient F unds) was deposited, but bank could not collect, and deducted from balance Service charge for various services provided to customers Customer note and interest: bank acts as collection agent for company, takes payments directly Interest earned usually on the average daily balance
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Internal Control System Consists of the policies and procedures necessary to ensure: The safeguarding of an entity’s assets The reliability of its accounting records The accomplishment of its overall objectives
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Internal Control It is impossible for the owners/stockholders to be involved in daily activities of the business; managers have that responsibility. Internal control is the policies and procedures necessary to ensure the safeguarding of an entity’s assets, the reliability of its accounting records, and the accomplishment of overall company objectives.
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The Sarbanes-Oxley Act of 2002 Passed by Congress due to the corporate accounting scandals to restore public confidence in the financial reporting system after Enron and WorldCom
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This note was uploaded on 02/20/2012 for the course MGMT 200 taught by Professor Greigg during the Fall '08 term at Purdue University-West Lafayette.

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Chapter 6 - Chapter 6: Cash and Internal Control Cash and...

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