1. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Sarbanes-Oxley, Internal Control, and Cash Chapter 5

2. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Learning Objectives After studying this chapter, you should be able to: Describe the Sarbanes-Oxley Act and its impact on internal controls and financial reporting Describe and illustrate the objectives and elements of internal control Describe and illustrate the application of internal controls to cash Describe the nature of a bank account and its use in controlling cash (continued…)

3. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Learning Objectives After studying this chapter, you should be able to: Describe and illustrate the use of a bank reconciliation in controlling cash Describe the accounting for special-purpose cash funds Describe and illustrate the reporting of cash and cash equivalents in the financial statements Financial Analysis: Describe and illustrate the ratio of cash to monthly cash expenses in assessing the ability of a company to continue operating

4. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Describe the Sarbanes-Oxley Act and its impact on internal controls and financial reporting Learning Objective 1

5. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Sarbanes-Oxley Act

6. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Describe and illustrate the objectives and elements of internal control Learning Objective 2

7. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Objectives of Internal Control____________ ____________ _______________ _______ ____ ___

8. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Elements of Internal Control ______________

9. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Control Environment Three factors influencing a company’s control environment are: __________________

10. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Risk Assessment Identifies risks, so that ______ can take steps to control them

11. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Control Procedures Control procedures is one of the most important elements of internal control. It includes: Competent personnel, rotating duties, and mandatory vacations Separating responsibilities for related operations Separating operations, custody of assets, and accounting Proofs and security measures

12. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Monitoring Locates ______ and improves ____ ______ Includes on-going efforts and separate evaluations

13. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Information and Communication _______ _________ _______ _________ ____________ _______ _________

14. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Limitations of Internal Controls _____ _______ ______ / ____________

15. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Describe and illustrate the application of internal controls to cash Learning Objective 3

16. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. The Nature of Cash Coins Currency Checks Money Orders Money on Deposit

17. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Cash Received from Sales

18. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Cash Received in the Mail _____ ______ Person Opening Mail _____ ______

19. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Cash Received by EFT Company Bank Customer Bank

20. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Control of Cash Payments _______ ______ Invoice, Purchase Order, and Receiving Report Invoice, Purchase Order, and Receiving Report

21. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Describe the nature of a bank account and its use in controlling cash Learning Objective 4

22. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Nature of a Bank Account

23. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Describe and illustrate the use of a bank reconciliation in controlling cash Learning Objective 5

24. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Bank Reconciliation Must be _______

25. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Steps in the Reconciliation Process

26. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Describe the accounting for special- purpose cash funds Learning Objective 6

27. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Special Purpose Cash Funds – Petty Cash Petty cash fund of $500 is established on August 1. Replenished the petty cash fund on August 31. There is no adjustment to Petty Cash when the fund is replenished.

28. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Describe and illustrate the reporting of cash and cash equivalents in the financial statements Learning Objective 7

29. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Financial Statement Reporting of Cash

30. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Financial Analysis: Describe and illustrate the ratio of cash to monthly cash expenses in assessing the ability of a company to continue operating Learning Objective 8

31. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Ratio of Cash to Monthly Cash Expenses Assesses the ability of a company to continue to operate when the company reports negative net cash flows from operations Ratio of Cash to Monthly Cash Expenses ________________ = Monthly Cash Expenses _________________ =

32. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Ratio of Cash to Monthly Cash Expenses Net cash flows from operating activities Year 2 $(52,537) End of the year cash and cash equivalents Year 1 $(29,062) 48,344 37,304 Monthly cash expenses: Ratio of cash to monthly cash expenses: Year 2 Year 1

33. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. End of Chapter 5