CHAPTER 8 INTERNAL CONTROL AND CASH Accounting Principles

CHAPTER 8 INTERNAL CONTROL AND CASH ﺍﻟﺮﻗﺎﺑﺔ ﺍﻟﺪﺍﺧﻠﻴﺔ ﻋﻠﻰ ﺍﻟﻨﻘﺪ Accounting Principles, Eighth Edition Chapter 8 -1

Internal Control Methods and measures adopted to: Chapter 8 -2 1. Safeguard assets. ﺣﻤﺎﻳﺔ ﺍﻻﺻﻮﻝ 2. Enhance accuracy and reliability of accounting records. Reduce risk of: ﺗﻌﺰﻳﺰ ﺍﻟﺪﻗﺔ ﻭﻣﺪﻯ ﺍﻻﻋﺘﻤﺎﺩ ﻋﻠﻰ ﺍﻟﺴﺠﻼﺕ ﺍﻟﻤﺤﺎﺳﺒﻴﺔ a. Errors (unintentional) ﺗﻘﻠﻴﻞ ﻣﺨﺎﻃﺮ ﺍﻻﺧﻄﺎﺀ ﻏﻴﺮ ﺍﻟﻤﻘﺼﻮﺩﺓ b. Irregularities (intentional) ﺍﻭ ﺍﻻﺧﻄﺎﺀ ﺍﻟﻤﻘﺼﻮﺩﺓ LO 1 Define internal control.

Internal Control Principles of Internal Control ﻣﺒﺎﺩﺉ ﺍﻟﺮﻗﺎﺑﺔ ﺍﻟﺪﺍﺧﻠﻴﺔ Illustration 8 -1 Measures vary with size and nature of the business. ﺣﺠﻢ ﺍﻟﺸﺮﻛﺔ ﻭﻃﺒﻴﻌﺔ ﻋﻤﻠﻬﺎ management’s control philosophy. ﻓﻠﺴﻔﺔ ﺍﻻﺩﺍﺭﺓ ﻓﻲ ﺍﻟﺮﻗﺎﺑﺔ Chapter 8 -4 LO 2 Identify the principles of internal control.

Internal Control Principles of Internal Control Illustration 8 -3 PHYSICAL, MECHANICAL, AND ELECTRONIC CONTROLS Physical ﺣﺴﻲ ﻭﺍﻗﻌﻲ Mechanical and Electronic ﺃﻠﻲ ﻭﺍﻟﻜﺘﺮﻭﻧﻲ Chapter 8 -5 LO 2 Identify the principles of internal control.

Internal Control Principles of Internal Control INDEPENDENT INTERNAL VERIFICATION 1. Records periodically verified by an employee who is independent. 2. Discrepancies reported to management. OTHER CONTROLS 1. Bond employees. ﻛﻔﺎﻟﺔ ﻣﻮﻇﻔﻴﻦ 2. Rotate employees’ duties and require vacations. ﺗﺪﻭﻳﺮ ﺍﻟﻤﻮﻇﻔﻴﻦ ﻋﻠﻰ ﺍﻻﻋﻤﺎﻝ 3. Conduct background checks. ﺍﺟﺮﺍﺀ ﺍﻟﺘﻔﺘﻴﺶ ﺍﻟﻤﺮﺗﺠﻊ Chapter 8 -6 LO 2 Identify the principles of internal control.

Cash Controls Internal Control over Cash Receipts Establishment of Responsibility Only designated personnel are authorized to handle cash receipts (cashiers) Documentation Procedures Use remittance advice (mail receipts), cash register tapes, and deposit slips Independent Internal Verification Supervisors count cash receipts daily; treasurer compares total receipts to bank deposits daily Segregation of Duties Different individuals receive cash, record cash receipts, and hold the cash Physical, Mechanical, and Electronic Controls Store cash in safes and bank vaults; limit access to storage areas; use cash registers Other Controls Bond personnel who handle cash; require employees to take vacations; deposit all cash in bank daily Illustration 8 -5 Chapter 8 -7 LO 3 Explain the applications of internal control principles to cash receipts.

Mail Receipts Control Procedures: ﺍﺟﺮﺍﺀﺍﺕ ﺍﻟﺮﻗﺎﺑﺔ Mail receipts should be opened by two people, a list prepared, and each check endorsed. ﻭﺍﻟﺸﻜﺎﺕ ﺍﻟﻤﺼﺎﺩﻗﺔ , ﻭﺇﻋﺪﺍﺩ ﻗﺎﺋﻤﺔ , ﺑﺮﻳﺪ ﺍﻟﻤﻘﺒﻮﻇﺎﺕ ﻳﺠﺐ ﺍﻥ ﻳﻔﺘﺢ ﻣﻦ ﻗﺒﻞ ﻣﻮﻇﻔﺎﻥ Copy of the list, along with the checks and remittance advices, sent to cashier’s department. ﻣﻊ ﺍﻟﺸﻜﺎﺕ ﻭﺍﻟﺘﺤﻮﻳﻼﺕ ﺗﺮﺳﻞ ﺩﺍﺋﺮﺓ ﺍﻟﺼﻨﺪﻭﻕ , ﻧﺴﺨﺔ ﻣﻦ ﺍﻟﻘﺎﺋﻤﺔ Cashier adds the checks to the over-the-counter receipts and prepares a daily cash summary and makes the daily bank deposit. ﺗﻌﺪ ﻣﻠﺨﺺ ﺍﻟﻨﻘﺪﻳﺔ ﺍﻟﻴﻮﻣﻲ , ﺩﺍﺋﺮﺓ ﺍﻟﺼﻨﺪﻭﻕ Copy of list sent to treasurer’s office for comparison with total shown on daily cash summary. Chapter 8 -9 ﺗﺮﺳﻞ ﺍﻟﻰ ﻣﻜﺘﺐ ﻣﺪﻳﺮ ﺍﻟﺨﺰﻳﻨﺔ ﻟﻠﻤﻘﺎﺭﻧﺔ ﺑﺎﻹﺟﻤﺎﻟﻲ ﺍﻟﻈﺎﻫﺮ ﻓﻲ ﻣﻠﺨﺺ ﺍﻟﻨﻘﺪﻳﺔ , ﻧﺴﺨﺔ ﻣﻦ ﺍﻟﻘﺎﺋﻤﺔ ﺍﻟﻴﻮﻣﻲ LO 3 Explain the applications of internal control principles to cash receipts.

Cash Controls Internal Control over Cash Disbursements Generally, internal control over cash disbursements is more effective when companies pay by check, rather than by cash. Applications: Voucher system Electronic funds transfers (EFT) system Petty cash fund Chapter 8 -10 LO 4 Explain the applications of internal control principles to cash disbursements.

Cash Controls Internal Control over Cash Disbursements Establishment of Responsibility Only designated personnel are authorized to sign checks (treasurer) Segregation of Duties Different individuals approve and make payments; check signers do not record disbursements Documentation Procedures Use prenumbered checks and account for them in sequence; each check must have an approved invoice Other Controls Stamp invoices PAID Independent Internal Verification Compare checks to invoices; reconcile bank statement monthly Physical, Mechanical, and Electronic Controls Store blank checks in safes, with limited access; print check amounts by machine in indelible ink Illustration 8 -8 Chapter 8 -11 LO 4 Explain the applications of internal control principles to cash disbursements.

Cash Controls Internal Control over Cash Disbursements Petty Cash Fund - Used to pay small amounts. Involves: ﺻﻨﺪﻭﻕ ﺍﻟﻤﺼﺎﺭﻳﻒ ﺍﻟﻨﺜﺮﻳﺔ ﻳﺴﺘﺨﺪﻡ ﻟﺪﻓﻊ ﺍﻟﻤﻘﺎﺩﻳﺮ ﺍﻟﻘﻠﻴﻠﺔ 1. establishing the fund, ﺗﺄﺴﻴﺲ ﺍﻟﺼﻨﺪﻭﻕ 2. making payments from the fund, and ﺍﻟﺪﻓﻊ ﻳﺘﻢ ﻣﻦ ﺧﻼﻟﻪ 3. replenishing the fund. ﺍﻋﺎﺩﺓ ﺗﺰﻭﻳﺪ ﺍﻟﺼﻨﺪﻭﻕ Chapter 8 -12 LO 5 Describe the operation of a petty cash fund.

Cash Controls E 8 -8 Lincolnville Company uses a petty cash system. The fund was established on March 1 with a balance of $100. During March the following petty cash receipts were found in the petty cash box. ﺧﻼﻝ ﺍﻟﺸﻬﺮ ﺍﻟﻮﺻﻮﻻﺕ ﺍﻟﺘﺎﻟﻴﺔ ﻭﺟﺪﺕ ﻓﻲ ﺍﻟﺼﻨﺪﻭﻕ March 5 Stamp inventory ﻃﻮﺍﺑﻊ $39 March 7 Freight-out ﻣﺼﺎﺭﻳﻒ ﻧﻘﻞ ﺑﻀﺎﻋﺔ ﻟﻠﺨﺎﺭﺝ March 9 Miscellaneous expense ﻣﺼﺎﺭﻳﻒ ﻣﺘﻔﺮﻗﺔ March 11 Travel expense ﻣﺼﺎﺭﻳﻒ ﻧﻘﻞ March 14 Miscellaneous expense 21 6 24 5 The fund was replenished ﺃﻌﻴﺪ ﺗﺰﻭﻳﺪﻩ on March 15 when the fund contained $3 in cash ﺩﻭﻻﺭ ﻓﻘﻂ 3 ﻋﻨﺪﻣﺎ ﻛﺎﻥ ﺍﻟﺼﻨﺪﻭﻕ ﻳﺤﺘﻮﻱ ﻋﻠﻰ. On March 20, the amount in the fund was increased to $150. Instructions: Journalize the entries in March that pertain to the operation of the petty cash fund. Chapter 8 -13 LO 5 Describe the operation of a petty cash fund.

Cash Controls E 8 -8 was replenished on March 15 when the fund contained $3 in cash. E 8 -8 Thefund was established on March 1 with a balance of $100. March 1 Petty cash 100 Cash March 15 Postage expense 39 Freight-out 21 Miscellaneous expense 11 Travel expense Cash over and short Cash Chapter 8 -14 100 24 2 97 LO 5 Describe the operation of a petty cash fund.

Cash Controls E 8 -8 On March 20, the amount in the fund was increased to $150. March 20 Chapter 8 -15 Petty cash Cash 50 50 LO 5 Describe the operation of a petty cash fund.

Use of a Bank Contributes to good internal control over cash. ﺗﺴﺎﻫﻢ ﻓﻲ ﺗﻌﺰﻳﺰ ﺍﻟﺮﻗﺎﺑﺔ ﺍﻟﺪﺍﺧﻠﻴﺔ ﻋﻠﻰ ﺍﻟﻨﻘﺪ Minimizes the amount of currency on hand. ﺗﻘﻠﻴﻞ ﻣﻦ ﺣﺠﻢ ﺍﻻﻣﻮﺍﻝ ﺗﺤﺖ ﺍﻟﻴﺪ Creates a double record of bank transactions. ﺧﻠﻖ ﺳﺠﻠﻴﻦ ﻟﻠﻨﻘﺪﻳﺔ ﻭﺍﺣﺪ ﻓﻲ ﺍﻟﺸﺮﻛﺔ ﻭﺍﻷﺨﺮ ﻓﻲ ﺍﻟﺒﻨﻚ Bank reconciliation. ﺍﻋﺪﺍﺩ ﻣﺬﻛﺮﺓ ﺗﺴﻮﻳﺔ ﺍﻟﺒﻨﻚ Chapter 8 -16 LO 6 Indicate the control features of a bank account.

Use of a Bank Illustration 8 -10 Making Bank Deposits ﺍﻻﻳﺪﺍﻉ ﻟﺪﻯ ﺍﻟﺒﻨﻚ Authorized employee should make deposit. Front Side Chapter 8 -17 Bank Code Numbers Reverse Side LO 6 Indicate the control features of a bank account.

Use of a Bank Writing Checks ﺗﺤﺮﻳﺮ ﺍﻟﺸﻴﻜﺎﺕ Illustration 8 -11 Written order signed by depositor directing bank to pay a specified sum of money to a designated recipient. Maker ﻣﺤﺮﺭ ﺍﻟﺸﻴﻚ Payee ﺍﻟﻤﺪﻓﻮﻉ ﻟﺔ Payer ( ﺍﻟﺪﺍﻓﻊ )ﺍﻟﺒﻨﻚ Chapter 8 -18 LO 6 Indicate the control features of a bank account.

Use of a Bank Illustration 8 -12 Bank Statements Debit Memorandum ﺍﺷﻌﺎﺭ ﻣﺪﻳﻦ Bank service charge ﺧﺼﻢ ﺧﺪﻣﺎﺕ ﺍﻟﺒﻨﻚ NSF (not sufficient funds) ( ﺍﻟﺮﺻﻴﺪ ﻏﻴﺮ ﻛﺎﻓﻲ ) ﺷﻜﺎﺕ ﻣﺮﺗﺠﻌﺔ Credit Memorandum ﺍﺷﻌﺎﺭ ﺩﺍﺋﻦ Collect notes receivable. ﺗﺤﺼﻴﻞ ﺍﻭﺭﺍﻕ ﺍﻟﻘﺒﺾ Interest earned. ﺍﻳﺮﺍﺩ ﻓﺎﺋﺪﺓ Chapter 8 -19 LO 6 Indicate the control features of a bank account.

Use of a Bank Reconciliation Procedures Illustration 8 -13 + Deposit in Transit + Notes collected by bank - - NSF (bounced) checks - Check printing or other service charges Outstanding Checks +- Bank Errors +- Book Errors CORRECT BALANCE Chapter 8 -21 CORRECT BALANCE LO 7 Prepare a bank reconciliation.

Use of a Bank E 8 -11 The following information pertains to Family Video Company. 1. Cash balance per bank, July 31, $7, 263. 2. Cash balance per books, July 31, $7, 284. 3. July bank service charge not recorded by the depositor $28. 4. Deposits in transit, July 31, $1, 500. 5. Bank collected $900 note for Family in July, plus interest $36, less fee $20. The collection has not been recorded by Family, and no interest has been accrued. 6. Outstanding checks, July 31, $591. Instructions a) Prepare a bank reconciliation at July 31. b) Journalize the adjusting entries at July 31 on the books of Family Video Company. Chapter 8 -22 LO 7 Prepare a bank reconciliation.

Use of a Bank E 8 -11 a) Prepare a bank reconciliation at July 31. Cash balance per bank statement Add: Deposit in transit Less: Outstanding checks Adjusted cash balance per bank Cash balance per books Add: Collection of notes receivable Collection of interest Less: Bank service charge Note collection fee Adjusted cash balance per books Chapter 8 -23 $7, 263 1, 500 (591) $8, 172 $7, 284 900 36 (28) (20) $8, 172 LO 7 Prepare a bank reconciliation.

Use of a Bank E 8 -11 b) Journalize the adjusting entries at July 31 on the books of Family Video Company. Dr. Cr. July 31 Miscellaneous expense 28 July 31 Cash 916 Miscellaneous expense Interest revenue Notes receivable 28 20 36 900 Note: Adjusting journal entry includes only the adjustments to the cash balance per books. Chapter 8 -24 ﻗﻴﻮﺩ ﺍﻟﺘﺴﻮﻳﺔ ﻓﻘﻂ ﻣﺘﻌﻠﻘﺔ ﺑﺘﺴﻮﻳﺔ ﺣﺴﺎﺏ ﺍﻟﻨﻘﺪﻳﺔ ﻓﻲ ﺩﻓﺎﺗﺮ ﺍﻟﻤﺸﺮﻭﻉ LO 7 Prepare a bank reconciliation.