Student Version o Repetition is an important component, a key part of learning. In memory, the more times patterns of thought are repeated, the more likely you will be able to recall information. o These PowerPoint slides have been modified from the lecture decks by making them fill-in-the-blank. Why? So that you get an opportunity to repeat a visual cue (from the lecture or the book) via completing text here. o In addition, most text book exhibits have been removed as they are available in your text directly.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Sarbanes-Oxley, Internal Control, and Cash Chapter 8

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Describe the Sarbanes-Oxley Act of 2002 and its impact on internal controls and financial reporting. 1

______-________ Act of 2002 o The ______-________Act of 2002 (often referred to simply as _______-__________ ) applies only to companies whose stock is _________ on _________ exchanges. Its purpose is to restore _________ _________ and trust in the financial _________ of companies.

______-________ Act of 2002 o _______-_____ requires companies to maintain strong and effective _________ _________ over the recording of _________ and the preparing of _________ _________.

Sarbanes-Oxley Act of 2002 o _________ _________ is broadly defined as the procedures and processes used by a company to:  ________________________

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Describe and illustrate the objectives and elements of internal control. 2

Internal Control

o __________ __________ is the intentional act of __________ an employer for personal __________.

Elements of Internal Control o Management is responsible for designing and applying five __________ of __________ __________ to meet the __________ internal control objectives. These elements are as follows:  ______________________

Control __________ o The __________ environment is the overall __________ of management and employees about the importance of __________. __________ factors influencing a company’s control environment are as follows:  __________________________________

Control Environment

Control ____________________ o __________________ __________________ provide reasonable assurance that business goals will be achieved. __________________ __________________ include the following:  __________________

Control Procedures

Monitoring o ______________ the ________ ________ system is used to locate ________ and ________ controls.

_______________ o Monitoring often includes ________ employee behavior and the accounting system for indicators of ________ ________.

Limitations of Internal Control o Internal controls can provide only reasonable assurance for __________________ __________, __________________ accurate information, and __________________ with laws and regulations. This is due to the following factors:  ________________________

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Describe and illustrate the application of internal controls to cash. 3

_______________ Controls Over _________ and _________ o Cash includes coins, _________ (_________ _________ ), checks, and _________ _________. _________ on _________ with a bank or other financial institution that is available for _________ is also considered cash. Cash is the _________ most likely to be _________ or used _________ in a business.

Control of Cash Receipts o Businesses normally _________ cash from _________ main sources:  Customers _________ _________ or services  Customers _________ _________ on account

Cash Received from _________ _________ o One of the most important controls to protect cash _________ in over-the-counter _________ is a _________ register.

Control of Cash Receipts o A predetermined _________ of _________ that is given to each cash register clerk in a cash drawer is called a _________ _________.

Control of _________ Receipts o Salespersons may make errors in _________ change for customers or _______ ______ cash sales. As a result, the amount of _________ on hand may differ from the amount of _________ _________. Such differences are recorded in a ______ ______ __ _______ account.

Cash _________ from Cash _________ o If there had been cash over, ______ _____ and _________ would have been _________ for the overage.

Cash Received in the Mail o Cash is received in the mail when customers _________ their bills. Most companies design their _________ so that customers _________ a portion of the _________, called a __________ advice, with their _________.

Cash Received by _________ o Cash may also be received from customers through _________ ______ _______ (EFT). Customers may _________ automatic _________ from their _________ _________ to pay _________ _________.

Cash Received by _________ o Companies encourage customers to use _________ for the following reasons:  _____________________________________

Control of Cash ___________ o The control of ___________ payments should provide ___________ assurance that:  _____________________________________

Voucher System o A ______ _____ is a set of procedures for ___________ and ___________ liabilities and ___________ payments. It may be either ___________ or ___________.

___________ System o A voucher is any document that serves as ___________ of authority to pay ___________ or ___________ an ___________ ___________ transfer.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Describe the nature of a bank account and its use in controlling cash. 4

___________ ___________ o A major reason that businesses use bank accounts is for ___________ ___________. Some of the control advantages of using ___________ ___________ are as follows:  _____________________________________

Bank Statement o A summary received from the bank (usually ___________ ) of all ___________ ___________ ___________ is called a bank ___________. It shows the ___________ balance, ___________, deductions, and the ___________ balance.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Describe and illustrate the use of a bank reconciliation in controlling cash. 5

Bank ___________ o A _____ reconciliation is an ___________ of the items and amounts that cause the cash balance reported in the bank ___________ to ___________ from the balance of the cash ___________ in the ledger. This is used to determine the adjusted ___________ ___________.

Bank ___________ o A bank _________________ is usually divided into two ___________ as follows:  _____________________________________ _____________________________________ _____________________________________ _____________________________________

Bank Reconciliation

Step 1 Power Networking Bank Reconciliation o Power Networking prepares to reconcile the monthly bank statement as of July 31. The bank statement shows an ending cash balance of $3,

Bank’s RecordsPower Networking’s Records Step 1 Power Networking Bank Reconciliation

Step 2 Power Networking Bank Reconciliation o A deposit on July 31 of $ is not recorded on the bank statement.

Bank’s Records Power Networking’s Records ______ ______ $3, Add: $4, Step 2 Power Networking Bank Reconciliation

Step 3 Power Networking Bank Reconciliation o Three checks that were written during the month did not appear on the bank statement: No. 812, $1,061; No. 878, $435.39, No. 883, $48.60.

Bank’s Records Power Networking’s Records Step 3 Add deposit ____ ________ by bank $4, Cash balance$_________ Deduct outstanding checks: No. ____$ ______ No. ____ ______ No. ____ ______ Power Networking Bank Reconciliation

Add deposit not recorded by bank $4, Bank’s Records Power Networking’s Records Cash balance$3, Deduct outstanding checks: No. 812$1, No No , $ ________ balance Step 4 Power Networking Bank Reconciliation

Step 5 Power Networking Bank Reconciliation o The cash balance in Power Networking’s ledger on July 31 is $2,

Bank’s Records Power Networking’s Records Step 5 Cash balance $ _______ Power Networking Bank Reconciliation

Step 6 Power Networking Bank Reconciliation o A credit memo on the bank statement indicates that the bank collected a note in the amount of $400 and the related interest of $8 for Power Networking.

Bank’s Records Power Networking’s Records ______ balance$ _______ Add: Step 6 Power Networking Bank Reconciliation

Step 7 Power Networking Bank Reconciliation o A check from a customer (Thomas Ivey) for $300 was returned by the bank because of insufficient funds (NSF) as indicated by a debit memo. A bank service charge of $18 was also indicated by a debit memo.

Bank’s Records Power Networking’s Records Deduct: $ ______ Step 7 Power Networking Bank Reconciliation ______ balance$ _______ Add: _____ and _______ _______ by bank

Error Power Networking Bank Reconciliation o Check No. 879 for $ to Taylor Company on account was erroneously recorded in the journal as $ When an error is made, two questions are asked: (1) Who made the error? (2) Does correcting the error cause the cash account to go up or down? o Power Networking made the error, so the item is placed on the company’s side of the reconciliation. By correcting the error, the cash account goes down. (Thus, it is a deduction on the reconciliation.)

Bank’s Records Power Networking’s Records ____ _________ Chk. No. 879______ ______ Power Networking Bank Reconciliation Deduct: NSF check$ _____ _____ ________ ______ balance$ _______ Add: _____ and _______ _______ by bank

Bank’s Records Power Networking’s Records Cash balance$2, Add note and interest collected by bank $2, Deduct check NSF$ Bank service charges18.00 Error recording Chk. No $ _______ Step 8 Power Networking Bank Reconciliation

Bank’s Records Power Networking’s Records Add deposit not recorded by bank $4, Cash balance$3, Cash balance$2, Deduct outstanding checks: No. 812$1, No No , Add note and interest collected by bank $2, Deduct check NSF$ Bank service charges18.00 $2, Adjusted balance $2, Adjusted balance ______ Error recording Chk. No Power Networking Bank Reconciliation

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Describe the accounting for special-purpose cash funds. 6

_______ _______ Fund o It is usually not practical for a business to write checks to pay _______ _______. Thus, it is desirable to control such payments by using a special _______ fund, called a _______ _______ _______.

IMPORTANT! _______ _______ Fund o The only time Petty _______ is _______ is when the fund is initially _______ or when the fund is _______. The only time Petty Cash is _______ is when the fund is being _______.

_______- Purpose Funds o Companies often use other cash funds for _______ needs, such as payroll or travel expenses. Such funds are called _______- _______ _______.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Describe and illustrate the reporting of cash and cash equivalents in the financial statements. 7

Financial Statement Reporting of Cash o A company’s _______ cash is normally invested in _______ _______ investments. These _______ are called cash _______.

Financial Statement Reporting of ________ o Companies that have invested excess cash in ________ ________ usually report ________ and ________ equivalents as ________ amount on the ________ ________.

Financial Statement Reporting of Cash o Banks may require ________ to maintain ________ cash balances in their bank accounts. Such a ________ is called a ________ balance.

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective Describe and illustrate the use of the ratio of cash to monthly cash expenses to assess the ability of a company to continue in business. 8

Ratio of ________ to Monthly ________ ________ o A ________ ratio that is especially useful for startup companies or companies in ________ ________ is the ratio of ________ to ________ ________ ________. The ratio is computed as shown below: Ratio of Cash to ______ ______ Expenses =

Ratio of Cash to ______ ______ ______ o The cash, including any cash ______, is taken from the ______ ______ as of year-end. The monthly ______ ______, sometimes called ______ burn, are estimated from the ______ activities section of the ______ of ______ ______ as follows: Monthly Cash Expenses = 12

c Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part. Sarbanes-Oxley, Internal Control, and Cash The End