1. Internal Control and Managing Cash
Chapter 4

2. Learning Objective 1
Set up an effective system of internal control.

3. Internal Control
Organizational plan and all related measures that an entity adopts
Safeguard assets
Encourage adherence to company policies
Promote operational efficiency
Ensure accurate and reliable accounting records

4. Components of an Effective System
Competent, reliable, and ethical personnel
Assignment of responsibilities
Proper authorization
Separation of duties

5. Audit
Examination of company’s financial statements accounting systems, and internal controls, by an outside party
Internal audit or- employee of the business
External auditor - independent

6. Limitations of Internal Control
Collusion - two or more employees working together to defraud the firm
A system of internal control that is too complex can hurt efficiency and control

7. Learning Objective 4
Use a budget to manage cash.

8. Using a Budget to Manage Cash
A financial plan that helps coordinate business activities
Cash budget - helps an entity manage cash by planning receipt and payment of cash during a future period

9. Using a Budget to Manage Cash
Cash balance, beginning
+ Budgeted cash receipts
- Budgeted cash payments
Expected cash balance, ending

10. Reporting Cash on the Balance Sheet
Companies usually combine all cash amount into single total called “Cash and Cash Equivalents” on the balance sheet.
Cash equivalents include liquid assets
Time deposits
Certificates of deposit

11. Learning Objective 5
Weigh ethical judgment in business.

12. Ethics and Accounting
Company code of ethical and responsible behavior by employees
AICPA Code of Professional Conduct
Standards of Ethical Conduct for Management Accountants