Chapter 8-1

Chapter

Fraud, Internal Control, and Cash

Chapter 8-2

Accounting Principles, Ninth Edition

Study Study Objectives Objectives

1. 2. 3. 4. 5. 6. 7. 8.
Chapter 8-3

Define fraud and internal control. Identify the principles of internal control. Explain the applications of internal control principles to cash receipts. Explain the applications of internal control principles to cash disbursements. Describe the operation of a petty cash fund. Indicate the control features of a bank account. Prepare a bank reconciliation. Explain the reporting of cash.

Fraud, Fraud, Internal Internal Control, Control, and and Cash Cash

Fraud Fraudand and Internal InternalControl Control

Fraud The SarbanesOxley Act Internal control Principles of internal control Limitations

Cash CashControls Controls

Control Control Features: Features:Use Useof of a aBank Bank

Making deposits Writing checks Bank statements Reconciling the bank account Electronic funds transfer (EFT) system

Reporting ReportingCash Cash

Cash receipts controls Cash disbursements controls

Cash equivalents Restricted cash Compensating balances

Chapter 8-4

Control Control Features: Features: Use Use of of a a Bank Bank

Reconciliation Procedures
Illustration 8-11

+ Deposit in Transit Outstanding Checks

+ Notes collected by bank NSF (bounced) checks Check printing or other service charges CORRECT BALANCE
SO 7 Prepare a bank reconciliation.

+- Bank Errors

+- Company Errors CORRECT BALANCE

Chapter 8-5

Control Control Features: Features: Use Use of of a a Bank Bank

Illustration: The bank statement for Laird Company (Illustration 8-10), shows a balance per bank of $15,907.45 on April 30, 2010. On this date the balance of cash per books is $11,589.45. Using the four reconciliation steps, Laird determines the following reconciling items.

Chapter 8-6

Control Control Features: Features: Use Use of of a a Bank Bank

Illustration: a) Prepare a bank reconciliation at April 30.
Cash balance per bank statement Add: Deposit in transit Less: Outstanding checks Adjusted cash balance per bank Cash balance per books Add: Less: Error in recording check no. 443 Collection of notes + interest - fee NSF check Bank service charge Adjusted cash balance per books
Chapter 8-7 Illustration 8-12

$15,907.45 2,201.40 (5,904.00) $12,204.85 $11,589.45 36.00 1,035.00 (425.60) (30.00) $12,204.85
SO 7 Prepare a bank reconciliation.

Control Control Features: Features: Use Use of of a a Bank Bank

The company records each reconciling item used to determine the adjusted cash balance per books. Collection of Note Receivable: Assuming interest of $50 has not been accrued and collection fee is charged to Miscellaneous Expense, the entry is: Apr. 30 Cash Miscellaneous expense Notes receivable Interest revenue 1,035.00 15.00 1,000.00 50.00

Chapter 8-8

SO 5 Describe the operation of a petty cash fund.

Control Control Features: Features: Use Use of of a a Bank Bank

Book Error: The cash disbursements journal shows that check no. 443 was a payment on account to Andrea Company, a supplier. The correcting entry is: Apr. 30 Cash Accounts payable 36.00 36.00

Chapter 8-9

SO 5 Describe the operation of a petty cash fund.

Control Control Features: Features: Use Use of of a a Bank Bank

NSF Check: As indicated earlier, an NSF check becomes an account receivable to the depositor. The entry is: Apr. 30 Accounts receivable Cash 425.60 425.60

Bank Service Charges: Depositors debit check printing charges (DM) and other bank service charges (SC) to Miscellaneous Expense. The entry is: Apr. 30
Chapter 8-10

Miscellaneous Cash

30.00 30.00

SO 5 Describe the operation of a petty cash fund.