1. Cash Coin and currency Checking, savings, and money market accounts
Undeposited, cashier, and certified checks
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2. Cash Equivalents Examples: Readily convertible to cash
Original maturity to investor of three months or less
Examples:
Commercial paper
U.S. Treasury bills
Certain money market funds
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3. Cash Management
Necessary to ensure company has neither too little nor too much cash on hand
Tools
Cash flow statement
Bank reconciliations
Petty cash funds
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4. Bank Statements Cash balance, beginning of period +Deposits
= Cash balance, end of period
+Deposits
+Customer notes and interest collected by bank
+Interest earned
Canceled checks
NSF checks
Service charges
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5. Bank Reconciliation – Step 1
Trace deposits listed on the bank statement to
the books.
Identify the deposits in transit.
Add to the bank balance.
Deposits in transit: Late period deposits not yet reflected on bank statement
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6. Bank Reconciliation – Step 2
Trace checks cleared by the bank to the books.
Identify outstanding checks.
Subtract from the bank balance.
Outstanding checks: Checks written but not yet presented to bank
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7. Bank Reconciliation – Step 3
List all other additions (credit memoranda) shown on the bank statement. Add to the book balance.
Credit memoranda: Interest earned, customer notes collected, etc.
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8. Bank Reconciliation – Step 4
List all other subtractions (debit memoranda)
shown on the bank statement.
Subtract from the book balance.
Debit memoranda:
NSF checks, service charges, etc.
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9. Example of Reconciliation
Cash Account Adjustments: Debit Memoranda
Balance per books, June $2,895.82
Add: Customer note collected $500.00
Interest on customer note
Interest earned during June
Error in recording check
Deduct: NSF check $245.72
Collection fee on note
Service charge for lockbox (282.22)
Adjusted balance, June $3,233.05 2

10. Bank Reconciliation – Step 5
Identify errors made by the bank or the company in recording the transactions during the period.
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11. Bank Reconciliation – Step 6
Use the information collected in steps 1 through 5 to prepare the bank reconciliation.
Bank Reconciliation
Balance per bank $$$
Adjusted balance $$$
Balance per books $$$
Adjusted balances for book and bank must agree
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12. Example of Reconciliation
Bank Statement Adjustments
Balance per statement, June 30 $3,308.59
Adjusted balance, June $3,233.05
Cash Account Adjustments
Balance per books, June $2,895.82
Adjusted balance, June $3,233.05
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13. Bank Reconciliation Adjustments
Balance per bank $$$
Adjusted balance $$$
Balance per books $$$
Book adjustments are the basis for adjustments
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14. Petty Cash Journalize Establishment of A check is written Fund
Disbursement
With Proper
Documentation
Fund Replenished
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15. Internal Control System
Consists of the policies and procedures necessary to ensure:
The safeguarding of an entity’s assets
The reliability of its accounting records
The accomplishment of its overall objectives
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16. Sarbanes-Oxley Act of 2002 (SOX)
Act of Congress intended to bring reform
to corporate accountability and stewardship
in response to corporate scandals
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17. Internal Control Control Environment Internal Accounting Control
System
Internal
Control
Procedures
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18. The Control Environment
Management’s competence and operating style
Personnel policies and practices
Influence of board of directors
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19. The Accounting System
Methods and records used to report transactions and maintain financial information
Can be manual, fully computerized, or a combination of both
Use of journals is an integral part of any system
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20. Internal Control Procedures
Independent
Review and
Appraisal
Independent
Verification
The Design and
Use of Business
Documents
Safeguarding
Assets and
Records
Proper
Authorizations
Segregation
of Duties
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21. Proper Authorizations
Authority and responsibility go hand in hand
Segregation of Duties
Separate physical custody from the accounting
for assets
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22. Independent Verification
One individual or department acts as a check on the work of another
Safeguarding Assets and Records
Protect assets and accounting records from loss,
theft, unauthorized use, etc.
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23. Independent Review and Appraisal
Provide for periodic review and appraisal of the accounting system and the people operating it
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24. The Design and Use of Business Documents
Capture all relevant information about a transaction and assist in proper recording and classification.
Are properly controlled
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25. Limitations on Internal Control
No system is entirely foolproof
Employees in collusion can override the best controls
Cost vs. benefit tradeoff
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26. Computerized Business Documents and Internal Control
Cash receipts should be deposited intact in the bank on a daily basis
All cash disbursements should be made by check
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27. Control Over Cash Receipts
Cash received over the counter (e.g., cash sales)
Cash received in the mail (e.g., credit sales)
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28. Controls Over Cash Received Over the Counter
Cash registers
Locked-in cash register tape
Prenumbered customer receipts
Investigate recurring discrepancies
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29. Controls Over Cash Received in the Mail
Two employees open mail
Prelist prepared
Monthly customer statements
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30. Document Flow for Merchandise
Check
Prepared
Purchase
Requisition
Receiving
Report
Order
Invoice
Approval
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31. End of Chapter 6