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Prepared by Coby Harmon University of California, Santa Barbara Westmont College

The document discusses internal controls over cash, including controls related to bank accounts. It outlines the learning objectives which include defining fraud and internal control, identifying internal control principles, and explaining controls over cash receipts, disbursements, petty cash, and bank accounts. The document also discusses reconciling bank statements, including reconciling items like deposits in transit, outstanding checks, and bank errors or charges.

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Peterson
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64 views21 pages

Prepared by Coby Harmon University of California, Santa Barbara Westmont College

The document discusses internal controls over cash, including controls related to bank accounts. It outlines the learning objectives which include defining fraud and internal control, identifying internal control principles, and explaining controls over cash receipts, disbursements, petty cash, and bank accounts. The document also discusses reconciling bank statements, including reconciling items like deposits in transit, outstanding checks, and bank errors or charges.

Uploaded by

Peterson
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Prepared by

Coby Harmon
University of California, Santa Barbara
Westmont College

8-1
Control Features: Use  Reconcile balance per
of a Bank
books and balance per
bank to their “correct
or true” balance.

8-2
8 Fraud, Internal Control,
and Cash
Learning Objectives
After studying this chapter, you should be able to:
[1] Define fraud and internal control.
[2] Identify the principles of internal control activities.
[3] Explain the applications of internal control principles to cash receipts.
[4] Explain the applications of internal control principles to cash
disbursements.
[5] Describe the operation of a petty cash fund.
[6] Indicate the control features of a bank account.
[7] Prepare a bank reconciliation.
[8] Explain the reporting of cash.
8-3
8 Fraud, Internal Control,
and Cash
Learning Objectives
After studying this chapter, you should be able to:
[1] Define fraud and internal control.
[2] Identify the principles of internal control activities.
[3] Explain the applications of internal control principles to cash receipts.
[4] Explain the applications of internal control principles to cash
disbursements.
[5] Describe the operation of a petty cash fund.
[6] Indicate the control features of a bank account.
[7] Prepare a bank reconciliation.
[8] Explain the reporting of cash.
8-4
Control Features: Use of a Bank

The use of a bank contributes significantly to good internal


control over cash.
 Minimizes the amount of currency on hand.

 Creates a double record of bank transactions.

 Bank reconciliation.
Helpful Hint Essentially,
the bank statement is a
copy of the bank’s records
sent to the customer or
made available online for
review.

8-5 LO 6 Indicate the control features of a bank account.


Control Features: Use of a Bank
Illustration 8-8
Making Bank Deposits
Authorized employee
should make deposit.

8-6 LO 6
Control Features: Use of a Bank

Writing Checks
Written order signed by depositor directing bank to pay a specified
sum of money to a designated recipient.
Illustration 8-9

Maker

Payee

Payer

8-7 LO 6
Control Features: Use of a Bank
Illustration 8-10
Bank Statements

Debit Memorandum
 Bank service charge.
 NSF (not sufficient
funds).

Credit Memorandum
 Collect notes
receivable.
 Interest earned.

8-8 LO 5 Prepare a bank reconciliation.


Reconciliation Procedures

Bank Service Charges: Depositors debit check printing


charges (DM) and other bank service charges (SC) to
Miscellaneous Expense. The entry is:

8-9
Control Features: Use of a Bank

Question
The control features of a bank account do not include:
a. having bank auditors verify the correctness of the bank
balance per books.

b. minimizing the amount of cash that must be kept on


hand.

c. providing a double record of all bank transactions.

d. safeguarding cash by using a bank as a depository.

8-10 LO 5 Prepare a bank reconciliation.


Control Features: Use of a Bank

Reconciling the Bank Account


Reconcile balance per books and balance per bank to their
“correct or true” balance.

Reconciling Items:
1. Deposits in transit.

2. Outstanding checks. Time Lags


3. Bank memoranda.

4. Errors.

8-11 LO 7 Prepare a bank reconciliation.


Control Features: Use of a Bank

Reconciliation Procedures Illustration 8-11

+ Deposit in Transit + Notes collected by bank


- Outstanding Checks - NSF (bounced) checks
+/- Bank Errors - Check printing or other
service charges
+/- Company Errors
CORRECT BALANCE CORRECT BALANCE

8-12 LO 7 Prepare a bank reconciliation.


Control Features: Use of a Bank

8-13 LO 7 Prepare a bank reconciliation.


Control Features: Use of a Bank

8-14
Control Features: Use of a Bank

Illustration: Prepare a bank reconciliation at April 30.

Cash balance per bank statement $15,907.45


Deposit in transit 2,201.40
Outstanding checks (5,904.00)
Adjusted cash balance per bank $12,204.85

Cash balance per books $11,589.45


Error in check No. 443 36.00
NSF check (425.60)
Bank service charge (30.00)
Collection of notes receivable 1,035.00
Adjusted cash balance per books $12,204.85

8-15 LO 7 Prepare a bank reconciliation.


Control Features: Use of a Bank

Entries From Bank Reconciliation


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 1,035.00


Miscellaneous Expense 15.00
Notes Receivable 1,000.00
Interest Revenue 50.00

8-16 LO 7 Prepare a bank reconciliation.


Control Features: Use of a 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 36.00


Accounts Payable 36.00

NSF Check: As indicated earlier, an NSF check becomes an


account receivable to the depositor. The entry is:

Apr. 30 Accounts Receivable 425.60


Cash 425.60
8-17 LO 7 Prepare a bank reconciliation.
Control Features: Use of a 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 36.00


Accounts Payable 36.00

NSF Check: As indicated earlier, an NSF check becomes an


account receivable to the depositor. The entry is:

Apr. 30 Accounts Receivable 425.60


Cash 425.60
8-18 LO 7 Prepare a bank reconciliation.
Control Features: Use of a Bank

Bank Service Charges: Depositors debit check printing charges


(DM) and other bank service charges (SC) to Miscellaneous
Expense. The entry is:

Apr. 30 Miscellaneous Expense 30.00


Cash 30.00

Illustration 8-13

8-19 LO 7 Prepare a bank reconciliation.


Question

 Illustration: Prepare  The reconciling item


a bank in a bank
reconciliation at reconciliation that
April 30. will result in an
adjusting entry by
the depositor is:

8-20
Control Features: Use of a Bank

Question
The reconciling item in a bank reconciliation that will result in
an adjusting entry by the depositor is:

a. outstanding checks.

b. deposit in transit.

c. a bank error.

d. bank service charges.

8-21 LO 7 Prepare a bank reconciliation.

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