Accounting Chapter 4

Reporting Objectives

reliability of reporting

segregation of duties

assure that no one person prepares all the documents and records for an activity

Clearly defined authority and responsibility

authority to perform important duties is delegated to specific individuals and those individuals should be held responsible for the performance of those duties in the evaluation of their performance

Length of operating cycles influences...

the classification of assets and liabilities on balance sheets

Control Environment

the collection of environmental factors that influence the effectiveness of control procedures

Cash Management Principles

-delay payments to suppliers (earning interest on cash company has) -keep inventory low to not tie up cash -speed collection from customers (invest cash/reduce financing) -highest return on excess cash

Parts of control environment

-philosophy and operating system of management -personnel policies and practices of the business -overall integrity, attitude, awareness, and actions of everyone in the business concerning the importance of control

Cash Equivalents

-short term -highly liquid investments -readily convertible into known amount of cash -so near maturity that interest rate changes wont affect their market value -original maturity of 3 months or less

Examples of Cash Equivalents

Certificate of Deposit Treasury Bill/Bond Commercial Paper Money Market Fund

Parts of Internal Control

Control Environment Risk Assessment Information and Communication Monitoring Control Activities/Internal Control Procedure

excess cash that will be needed soon

Invest it in short term investments

Cash

On hand+in banks+undeposited checks

Outstanding Check

a check issued and recorded by the business that has not been cashed by the recipient of the check

Deposits in Transit

an amount received and recorded by the business but has not been recorded by the bank in time to appear on the statement

Adequate documents and records

capture all relevant information about a transaction and assist in proper recording and classification. All documents should be properly controlled

Compliance Objectives

compliance with laws and regulations

Internal Control System

consists of the policies and procedures necessary to ensure operations objectives, reporting objectives, and compliance objectives

Operations Objectives

effectiveness and efficiency of the entity's operations, including financial performance goals and safeguarding assets against loss

Bank Reconciliation

ensures accounting records are consistent with bank's accounting records

Business Process Risks

internal processes of the company how the company allocates its resources to meet its objectives

Independent review and appraisal

periodic review of the accounting system and the people operating it to ensure that amounts are correct and correspond to properly authorized activities

Control Activities

policies/procedures top management establishes to help ensure that its objectives are met

Strategic Risks

possible threats to the organizations success in accomplishing its objectives and are external to the organization

Safeguarding assets and records

protecting assets and accounting records from loss, theft, unauthorized use, etc

Length of operating cycle affects...

the amount of capital a business needs and the policies that govern its sales of goods/services

Operating Cycle

the elapsed time between the purchase of goods for resale and the collection of cash from customers

Reporting Objectives

the reliability of its accounting records