accounting chapter 7

The custodian will add up the vouchers plus the cash in the petty cash fund..what two results happen:

If the total from above is less than the petty cash fund amount, a shortage has occurred and the cash short and over account will be debited

credit card sales:

Sales by credit cards and debit cards are treated as cash sales and typically include a fee (Credit Card Expense) that is paid by the business to the credit card processor.

cash receipts

Separation of duties is extremely important when dealing with:

A petty cash fund is set up for

a certain fixed amount (imprest system).

if the three documents match...

a check is issued to the vendor

responsible for posting to the general ledger based upon the remittance advices:

accounting department

The bank incorrectly decreased the business's account by $350 for a check written by another business.

addition to bank balance

deposits in transit

addition to bank balance

bank collection of notes receivable and interest

addition to book balance

interest earned on bank balance

addition to book balance

After the reconciliation is performed:

adjusting journal entries will need to be recorded for every reconciling item on the book side of bank reconciliation

separation of duties

an extremely useful internal control procedure when dealing with cash

The imprest system requires that:

at any point in time, the petty cash box contains cash and receipts that total the amount of the imprest balanc

examination of a company's financial statements and accounting systems by a trained accounting professional

audits

a bank account serves as a control device because of the various controls built into the bank account itself (e.g. signature card, deposit ticket, pre-numbered checks, bank statement and electronic funds transfer).

bank reconciliation

separate control procedures involving:

cash payments

two or more people working together to overcome internal controls

collusion

At any point in time the petty cash fund should:

contain cash plus expense vouchers equal to the petty cash fund amount

component of internal control that helps ensure business goals are achieved

control procedures

the organizational plan and all related measures that safeguard assets, encourage employees to follow company policies, promote operational efficiency, and ensure accurate and reliable accounting data

internal control

Step 4 of documents and control surrounding purchases and cash payments:

involves the customer matching the information from the purchase order, the receiving report and the invoice

Step 2 of documents and control surrounding purchases and cash payments:

involves the vendor shipping the merchandise to the customer along with an invoice

The individuals with access to cash should...

not also have access to the accounting records

petty cash:

occurs when it is not efficient to write a check for every small expense item (it is balanced regularly)

part of internal control that ensures resources are not wasted

operational efficiency

checks and remittance advices are:

processed separately

the net method:

records the amount of the sale less the processing fee at the time of sale (debit to Credit Card Expense recorded at the time of the sale).

the gross method:

records the gross amount of the sale at the time of sale and the credit card fees are paid and recorded at a later time (debit to Credit Card Expense recorded later)

identification of uncertainties that may arise due to a company's products, services, or operations

risk assessment

requires companies to review internal control and take responsibility for the accuracy and completeness of their financial reports

sarbanes-oxley act

example: the person who opens the bank statement should not also be the person who is reconciling cash

separation of duties

Companies establish a small petty cash fund to:

streamline record-keeping for small cash transactions

outstanding checks

subtraction from bank balance

business credited cash for $200. the correct amount was $2000

subtraction from book balance

service charge

subtraction from book balance

NSF check from customer

subtraction to book balance

Once the fund is set up, no more entries should be made to the petty cash account, unless:

the amount of the fund is being increased or decreased.

step 1 of documents and control surrounding purchases and cash payments:

the customer issuing a purchase order to the vendor which specifies the merchandise to be purchased and the price agreed upon

Step 3 of documents and control surrounding purchases and cash payments:

the customer physically receives the merchandise and prepares a receiving report which details the merchandise received in good condition and as ordered

clearly identifies the amount of cash for which the custodian is responsible, and it is the system's main internal control feature

the imprest system

internal control definition:

the organizational plan and all the related measures adopted by an entity to safeguard assets, encourage employees to follow company policies, promote operational efficiency, and ensure accurate and reliable accounting records

When a petty cash fund is set up the journal entry includes:

the petty cash account is debited and cash is credited.

responsible to deposit the cash in the bank account:

the treasurer

The final check involves the controller comparing the bank deposit:

to the general ledger entry for cash

sales can be recorded by:

using the net or gross method

internal control procedures:

1) competent, reliable and ethical personnel 2) assignment of responsibilities 3) separation of duties 4) audits 5) documents 6) electronic devices 7) E-commerce

without a sufficient one of these, information cannot be properly gathered and summarized

information system

the nature of an imprest system

Maintaining the Petty Cash account at its designated balance

should be prenumbered to prevent theft and inefficiency

documents

rearranges data by mathematical process

encryption

to establish an effective one, a company's CEO and top managers must behave honorably to set a good example for employees

environment

When replenishing the petty cash fund:

expense accounts represented by the vouchers will be debited and cash will be credited in order to replenish the petty cash fund

The bank reconciliation is the major control device and serves to:

explain the differences between the company's general ledger cash account and the bank statement.

limits access to a local network

firewalls