Chapter Four Cash and Internal Control Internal Controls

Chapter Four Cash and Internal Control

Internal Controls � Fraud Triangle � � OPPORTUNITY STRESS PRESSURE

PREVENTIVE CONTROLS � Separation of Duties � Physical Controls � Proper Authorization � Employee Management

DETECTIVE CONTROLS RECONCILATIONS--- Cash, Inventory, A/R, A/P PERFORMANCE REVIEWS Recording Transactions Sound Personnel Policies BRIEF EXERCISE 4 -3 PG 193 EXERCISE 4 -4 PG 197 E 4 -6, 4 -7 4 -8 PG 197 INTERNAL CONTROL

Cash and Cash Equivalents � Cash on hand � Cash in the Bank � Petty Cash � Cash Equivalents: anything that turns into cash in 90 days or less : Treasury Bills, 90 day CD � CASH SALES � Cash receipt = checks, cash, debit card � Credit Card = credit card payable not cash � BE 4 -4 PG 194 E 4 -5 PG 197

Bank Reconcilation � Bank = -o/s checks +Deposit in Transit Book +interest -bank charges +N/R & interest -NSF Checks +EFT -debit/svc fee Pg 178 Bank Statement CASH ACT –G/L PG 178 Pg 180 Bank Reconcilation

JOURNAL ENTRIES � Always has a debit (increase) or credit (decrease) to cash � Cash Increase is revenue or notes receivable � Cash Decrease is expenses, assets or Accounts receivable � Pg 181

Exercises � Do 4 -12 � Do 4 -13 pg 198

Petty Cash � Petty means small � JE for Set up and increase � Petty Cash � JE to Replenish � Expenses � Cash � Ex 4 -14, 4 -15

Cash Flow Statement – Direct Net income that is backed by cash is more likely to persist into the future than is net income not backed by cash. Operating – Cash inflows, Cash outflows Investing- investing in yourself and others Financing – debt and equity (company’s stock) Direct and Indirect Methods Direct used by CFE – pg 186 illustration 4 -11 Indirect mostly used by corporations

� E 4 -16 Classifications � E 4 -17 Net Cash Flows � Pg 199

Homework � P 4 -2 A , P 4 -3 A Bank Reconciliation � P 4 -5 A Cash Acct and Cash Flow Statement