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
