C6 - 1
Learning Objectives
Power Notes
1,Basic Accounting Systems
2,Internal Control
3,Controls Over Cash
4,Internal Control of Cash Receipts
5,Internal Control of Cash Payments
6,Bank Accounts,A Cash Control
7,Bank Reconciliation
8,Petty Cash
9,Balance Sheet Cash Presentation
10,Financial Analysis and Interpretation
Chapter F6
Accounting Systems,Internal Controls,and Cash
C6
C6 - 2
Internal Control Framework
Cash Receipts and Controls
Cash Payments and Controls
Bank Reconciliation
Petty Cash Accounting
Ratio of Cash to Current Liabilities
Slide # Power Note Topics
3
9
17
23
27
28
Note,To select a topic,type the slide # and press Enter.
Power NotesChapter F6
Accounting Systems,Internal Controls,and Cash
C6 - 3
1,Control Environment
Control Environment
Internal Control Framework
C6 - 4
1,Control Environment
2,Risk Assessment
Risk Assessment
Control Environment
Internal Control Framework
C6 - 5
1,Control Environment
2,Risk Assessment
3,Control Procedures
Control Procedures
Risk Assessment
Control Environment
Internal Control Framework
C6 - 6
1,Control Environment
2,Risk Assessment
3,Control Procedures
4,Monitoring
Monitoring
Control Procedures
Risk Assessment
Control Environment
Internal Control Framework
C6 - 7
Internal Control Framework
1,Control Environment
2,Risk Assessment
3,Control Procedures
4,Monitoring
5,Information and Communication
Communication
Monitoring
Control Procedures
Risk Assessment
Control Environment
C6 - 8
Internal Control Procedures
Competent Personnel
Rotating Duties
Mandatory Vacations
Separating Responsibilities for
Related Operations
Separating Accounting and Asset
Custody
Proofs and Security Measures
C6 - 9
Cash Accounts and Internal Controls
Many companies need several cash accounts to
account for different cash categories and funds.
Most companies have multiple bank accounts,
The title for each bank account should be:
Cash in Bank – (Name of Bank)
Preventive controls protect cash from theft and
misuse.
Detective controls are designed to detect theft or
misuse of cash and are also preventive in nature.
C6 - 10
1,Over the counter from cash customers,
Use of a cash register is an important control.
2,Received in the mail from credit customers.
Cash is in the form of checks.
All cash is sent to the Cashier’s Department.
An employee prepares a bank deposit ticket and
makes a bank deposit.
The bank deposit record is sent to the Accounting
Department where it is recorded.
Internal Control of Cash Receipts
Cash is normally received from two sources:
C6 - 11
Date Description Debit Credit
Cash Short and Over
Cash 3,142.00
Cash Short and Over 8.00
Sales 3,150.00
May 08
To record day’s cash sales,Actual cash
received is less than cash register receipts.
C6 - 12
Date Description Debit Credit
Cash Short and Over
Cash 3,142.00
Cash Short and Over 8.00
Sales 3,150.00
May 08
To record day’s cash sales,Actual cash
received is less than cash register receipts.
A debit in the Cash Short and Over
account represents an expense.
C6 - 13
Cash Receipts From Credit Customers
Accts,ReceivableSales Cash
PURCHASE
ORDER
SALES
ORDER
1
1 A purchase order is received and a sales order is prepared.
C6 - 14
Cash Receipts From Credit Customers
Accts,ReceivableSales Cash
PURCHASE
ORDER
SALES
ORDER
SHIPPING
REPORT
1 2
1 A purchase order is received and a sales order is prepared.
2 Merchandise is shipped and a shipping report is prepared.
C6 - 15
Cash Receipts From Credit Customers
SALES
INVOICE
Accts,ReceivableSales Cash
Credit Debit
PURCHASE
ORDER
SALES
ORDER
SHIPPING
REPORT
1 2 3
1 A purchase order is received and a sales order is prepared.
2 Merchandise is shipped and a shipping report is prepared.
3 A sales invoice is prepared and sent to customer.
C6 - 16
DEPOSIT
RECORD
Cash Receipts From Credit Customers
SALES
INVOICE
Accts,ReceivableSales Cash
Credit Debit Credit Debit
PURCHASE
ORDER
SALES
ORDER
SHIPPING
REPORT
1 2 3
4
1 A purchase order is received and a sales order is prepared.
2 Merchandise is shipped and a shipping report is prepared.
3 A sales invoice is prepared and sent to customer.
4 Cash is received from customer,deposited,and recorded.
C6 - 17
1,Cash controls must provide assurance that
payments are made for only authorized
transactions.
2,Cash controls should ensure that cash is used
efficiently.
3,A voucher system provides assurance that
what is being paid for was properly ordered,
received,and billed by the supplier.
Internal Control of Cash Payments
C6 - 18
Cash Payments to Suppliers
Accts,PayableCash Merchandise
PURCHASE
ORDER 1
1 A purchase order is sent to a supplier.
C6 - 19
Cash Payments to Suppliers
Accts,PayableCash Merchandise
PURCHASE
ORDER
RECEIVING
REPORT
1
2
1 A purchase order is sent to a supplier.
2 Merchandise is received and a receiving report is prepared.
C6 - 20
VOUCHER
Cash Payments to Suppliers
Accts,PayableCash Merchandise
Credit Debit
PURCHASE
ORDER
PURCHASE
INVOICE RECEIVING
REPORT
1
2
3
1 A purchase order is sent to a supplier.
2 Merchandise is received and a receiving report is prepared.
3 A purchase invoice is received and a voucher is prepared.
C6 - 21
VOUCHER
Cash Payments to Suppliers
CHECK
Accts,PayableCash Merchandise
Credit Debit Credit Debit
PURCHASE
ORDER
PURCHASE
INVOICE RECEIVING
REPORT
1
2
34
1 A purchase order is sent to a supplier.
2 Merchandise is received and a receiving report is prepared.
3 A purchase invoice is received and a voucher is prepared.
4 Cash is paid to the supplier and recorded.
C6 - 22
Cash Receipts and Payments
CHECK
Accts,PayableCash
Credit Debit
2
1 Cash received on
account from
customers.
DEPOSIT
RECORD
Accts,Receivable
Credit Debit
1
Selling Side of Business Buying Side of Business
2 Cash paid on
account to
suppliers.
C6 - 23
Power Networking
Bank Reconciliation
July 31,2003
Balance per bank statement $3,359.78
Add deposit of July 31,not recorded by bank 816.20
$4,175.98
Deduct outstanding checks:
No,812 $1,061.00
No,878 435.39
No,883 48.60 1,544.99
Adjusted balance $2,630.99
Balance per depositor’s records $2,549.99
Add note and interest collected by bank 408.00
$2,957.99
Deduct,Customer NSF check $300.00
Bank service charges 18.00
Error in recording Check No,879 9.00 327.00
Adjusted balance $2,630.99
C6 - 24
Power Networking
Bank Reconciliation
July 31,2003
Balance per bank statement $3,359.78
Add deposit in transit 816.20
$4,175.98
Deduct outstanding checks:
No,812 $1,061.00
No,878 435.39
No,883 48.60 1,544.99
Adjusted balance $2,630.99
Balance per depositor’s records $2,549.99
Add note and interest collected by bank 408.00
$2,957.99
Deduct,Customer NSF check $ 300.00
Bank service charges 18.00
Error in recording Ck,No,879 9.00 327.00
Adjusted balance $2,630.99
A
B
C6 - 25
Date Description Debit Credit
Bank Reconciliation Journal Entries
A
B
Cash 408
Notes Receivable 400
Interest Revenue 8
Accounts Receivable - T,Ivey 300
Miscellaneous Expense 18
Accounts Payable - Taylor Co,9
Cash 327
Jul,31
To record note collected by bank.
To record customer’s NSF check,bank service
charges,and error in recording Check No,879.
Jul,31
C6 - 26
Date Description P.R,Debit Credit
Balance
Date Item P.R,Debit Credit Debit Credit
Account,Cash Account No,11
General Journal
General Ledger
Page 1
A
B
7/31 Balance 2,549.99
Bank Reconciliation - Journal and Ledger
7/31 Cash 11 408.00
Notes Receivable 400.00
Interest Revenue 8.00
7/31 Accts,Receivable - T,Ivey 300.00
Miscellaneous Expense 18.00
Accts,Payable - Taylor Co,9.00
Cash 11 327.00
7/31 J1 408.00 2,957.99
7/31 J1 327.00 2,630.99
C6 - 27
Date Description Debit Credit
Petty Cash Accounting
Petty Cash 100.00
Cash 100.00
Office Supplies 50.00
Store Supplies 35.00
Misc,Admin,Expense 3.00
Cash 88.00
Note,No entry in Petty Cash account when the fund
is replenished.
Aug,1
To establish a petty cash fund.
To replenish the petty cash fund.
Aug,31
C6 - 28
Solvency Analysis
Solvency is the ability of a business to meet its
financial obligations (debts) as they are due.
Solvency analysis focuses on the ability of a
business to pay or otherwise satisfy its current
and noncurrent liabilities.
This ability is normally assessed by examining
balance sheet relationships.
C6 - 29
Solvency Measures — The Short-Term Creditor
A,Cash and equivalents $100,000 $ 120,000
B,Current liabilities 400,000 1,500,000
Doomsday ratio A / B 0.25 0.08
Doomsday Ratio
Laettner Co,Oakley Co.
How are these ratios used?
C6 - 30
Solvency Measures — The Short-Term Creditor
A,Cash and equivalents $100,000 $ 120,000
B,Current liabilities 400,000 1,500,000
Doomsday ratio A / B 0.25 0.08
Doomsday Ratio
Laettner Co,Oakley Co.
Use,To indicate the worst case assumption that
should the business cease to exist,only
the cash on hand is available to meet
creditor obligations.
C6 - 31
Note,To see the topic slide,type 2 and press Enter.
This is the last slide in Chapter F6,
Power NotesChapter F6
Accounting Systems,Internal Controls,and Cash
Learning Objectives
Power Notes
1,Basic Accounting Systems
2,Internal Control
3,Controls Over Cash
4,Internal Control of Cash Receipts
5,Internal Control of Cash Payments
6,Bank Accounts,A Cash Control
7,Bank Reconciliation
8,Petty Cash
9,Balance Sheet Cash Presentation
10,Financial Analysis and Interpretation
Chapter F6
Accounting Systems,Internal Controls,and Cash
C6
C6 - 2
Internal Control Framework
Cash Receipts and Controls
Cash Payments and Controls
Bank Reconciliation
Petty Cash Accounting
Ratio of Cash to Current Liabilities
Slide # Power Note Topics
3
9
17
23
27
28
Note,To select a topic,type the slide # and press Enter.
Power NotesChapter F6
Accounting Systems,Internal Controls,and Cash
C6 - 3
1,Control Environment
Control Environment
Internal Control Framework
C6 - 4
1,Control Environment
2,Risk Assessment
Risk Assessment
Control Environment
Internal Control Framework
C6 - 5
1,Control Environment
2,Risk Assessment
3,Control Procedures
Control Procedures
Risk Assessment
Control Environment
Internal Control Framework
C6 - 6
1,Control Environment
2,Risk Assessment
3,Control Procedures
4,Monitoring
Monitoring
Control Procedures
Risk Assessment
Control Environment
Internal Control Framework
C6 - 7
Internal Control Framework
1,Control Environment
2,Risk Assessment
3,Control Procedures
4,Monitoring
5,Information and Communication
Communication
Monitoring
Control Procedures
Risk Assessment
Control Environment
C6 - 8
Internal Control Procedures
Competent Personnel
Rotating Duties
Mandatory Vacations
Separating Responsibilities for
Related Operations
Separating Accounting and Asset
Custody
Proofs and Security Measures
C6 - 9
Cash Accounts and Internal Controls
Many companies need several cash accounts to
account for different cash categories and funds.
Most companies have multiple bank accounts,
The title for each bank account should be:
Cash in Bank – (Name of Bank)
Preventive controls protect cash from theft and
misuse.
Detective controls are designed to detect theft or
misuse of cash and are also preventive in nature.
C6 - 10
1,Over the counter from cash customers,
Use of a cash register is an important control.
2,Received in the mail from credit customers.
Cash is in the form of checks.
All cash is sent to the Cashier’s Department.
An employee prepares a bank deposit ticket and
makes a bank deposit.
The bank deposit record is sent to the Accounting
Department where it is recorded.
Internal Control of Cash Receipts
Cash is normally received from two sources:
C6 - 11
Date Description Debit Credit
Cash Short and Over
Cash 3,142.00
Cash Short and Over 8.00
Sales 3,150.00
May 08
To record day’s cash sales,Actual cash
received is less than cash register receipts.
C6 - 12
Date Description Debit Credit
Cash Short and Over
Cash 3,142.00
Cash Short and Over 8.00
Sales 3,150.00
May 08
To record day’s cash sales,Actual cash
received is less than cash register receipts.
A debit in the Cash Short and Over
account represents an expense.
C6 - 13
Cash Receipts From Credit Customers
Accts,ReceivableSales Cash
PURCHASE
ORDER
SALES
ORDER
1
1 A purchase order is received and a sales order is prepared.
C6 - 14
Cash Receipts From Credit Customers
Accts,ReceivableSales Cash
PURCHASE
ORDER
SALES
ORDER
SHIPPING
REPORT
1 2
1 A purchase order is received and a sales order is prepared.
2 Merchandise is shipped and a shipping report is prepared.
C6 - 15
Cash Receipts From Credit Customers
SALES
INVOICE
Accts,ReceivableSales Cash
Credit Debit
PURCHASE
ORDER
SALES
ORDER
SHIPPING
REPORT
1 2 3
1 A purchase order is received and a sales order is prepared.
2 Merchandise is shipped and a shipping report is prepared.
3 A sales invoice is prepared and sent to customer.
C6 - 16
DEPOSIT
RECORD
Cash Receipts From Credit Customers
SALES
INVOICE
Accts,ReceivableSales Cash
Credit Debit Credit Debit
PURCHASE
ORDER
SALES
ORDER
SHIPPING
REPORT
1 2 3
4
1 A purchase order is received and a sales order is prepared.
2 Merchandise is shipped and a shipping report is prepared.
3 A sales invoice is prepared and sent to customer.
4 Cash is received from customer,deposited,and recorded.
C6 - 17
1,Cash controls must provide assurance that
payments are made for only authorized
transactions.
2,Cash controls should ensure that cash is used
efficiently.
3,A voucher system provides assurance that
what is being paid for was properly ordered,
received,and billed by the supplier.
Internal Control of Cash Payments
C6 - 18
Cash Payments to Suppliers
Accts,PayableCash Merchandise
PURCHASE
ORDER 1
1 A purchase order is sent to a supplier.
C6 - 19
Cash Payments to Suppliers
Accts,PayableCash Merchandise
PURCHASE
ORDER
RECEIVING
REPORT
1
2
1 A purchase order is sent to a supplier.
2 Merchandise is received and a receiving report is prepared.
C6 - 20
VOUCHER
Cash Payments to Suppliers
Accts,PayableCash Merchandise
Credit Debit
PURCHASE
ORDER
PURCHASE
INVOICE RECEIVING
REPORT
1
2
3
1 A purchase order is sent to a supplier.
2 Merchandise is received and a receiving report is prepared.
3 A purchase invoice is received and a voucher is prepared.
C6 - 21
VOUCHER
Cash Payments to Suppliers
CHECK
Accts,PayableCash Merchandise
Credit Debit Credit Debit
PURCHASE
ORDER
PURCHASE
INVOICE RECEIVING
REPORT
1
2
34
1 A purchase order is sent to a supplier.
2 Merchandise is received and a receiving report is prepared.
3 A purchase invoice is received and a voucher is prepared.
4 Cash is paid to the supplier and recorded.
C6 - 22
Cash Receipts and Payments
CHECK
Accts,PayableCash
Credit Debit
2
1 Cash received on
account from
customers.
DEPOSIT
RECORD
Accts,Receivable
Credit Debit
1
Selling Side of Business Buying Side of Business
2 Cash paid on
account to
suppliers.
C6 - 23
Power Networking
Bank Reconciliation
July 31,2003
Balance per bank statement $3,359.78
Add deposit of July 31,not recorded by bank 816.20
$4,175.98
Deduct outstanding checks:
No,812 $1,061.00
No,878 435.39
No,883 48.60 1,544.99
Adjusted balance $2,630.99
Balance per depositor’s records $2,549.99
Add note and interest collected by bank 408.00
$2,957.99
Deduct,Customer NSF check $300.00
Bank service charges 18.00
Error in recording Check No,879 9.00 327.00
Adjusted balance $2,630.99
C6 - 24
Power Networking
Bank Reconciliation
July 31,2003
Balance per bank statement $3,359.78
Add deposit in transit 816.20
$4,175.98
Deduct outstanding checks:
No,812 $1,061.00
No,878 435.39
No,883 48.60 1,544.99
Adjusted balance $2,630.99
Balance per depositor’s records $2,549.99
Add note and interest collected by bank 408.00
$2,957.99
Deduct,Customer NSF check $ 300.00
Bank service charges 18.00
Error in recording Ck,No,879 9.00 327.00
Adjusted balance $2,630.99
A
B
C6 - 25
Date Description Debit Credit
Bank Reconciliation Journal Entries
A
B
Cash 408
Notes Receivable 400
Interest Revenue 8
Accounts Receivable - T,Ivey 300
Miscellaneous Expense 18
Accounts Payable - Taylor Co,9
Cash 327
Jul,31
To record note collected by bank.
To record customer’s NSF check,bank service
charges,and error in recording Check No,879.
Jul,31
C6 - 26
Date Description P.R,Debit Credit
Balance
Date Item P.R,Debit Credit Debit Credit
Account,Cash Account No,11
General Journal
General Ledger
Page 1
A
B
7/31 Balance 2,549.99
Bank Reconciliation - Journal and Ledger
7/31 Cash 11 408.00
Notes Receivable 400.00
Interest Revenue 8.00
7/31 Accts,Receivable - T,Ivey 300.00
Miscellaneous Expense 18.00
Accts,Payable - Taylor Co,9.00
Cash 11 327.00
7/31 J1 408.00 2,957.99
7/31 J1 327.00 2,630.99
C6 - 27
Date Description Debit Credit
Petty Cash Accounting
Petty Cash 100.00
Cash 100.00
Office Supplies 50.00
Store Supplies 35.00
Misc,Admin,Expense 3.00
Cash 88.00
Note,No entry in Petty Cash account when the fund
is replenished.
Aug,1
To establish a petty cash fund.
To replenish the petty cash fund.
Aug,31
C6 - 28
Solvency Analysis
Solvency is the ability of a business to meet its
financial obligations (debts) as they are due.
Solvency analysis focuses on the ability of a
business to pay or otherwise satisfy its current
and noncurrent liabilities.
This ability is normally assessed by examining
balance sheet relationships.
C6 - 29
Solvency Measures — The Short-Term Creditor
A,Cash and equivalents $100,000 $ 120,000
B,Current liabilities 400,000 1,500,000
Doomsday ratio A / B 0.25 0.08
Doomsday Ratio
Laettner Co,Oakley Co.
How are these ratios used?
C6 - 30
Solvency Measures — The Short-Term Creditor
A,Cash and equivalents $100,000 $ 120,000
B,Current liabilities 400,000 1,500,000
Doomsday ratio A / B 0.25 0.08
Doomsday Ratio
Laettner Co,Oakley Co.
Use,To indicate the worst case assumption that
should the business cease to exist,only
the cash on hand is available to meet
creditor obligations.
C6 - 31
Note,To see the topic slide,type 2 and press Enter.
This is the last slide in Chapter F6,
Power NotesChapter F6
Accounting Systems,Internal Controls,and Cash
