1. 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.

2. c. 2014 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

3. c. 2014 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

4. ______-________ 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.

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

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

7. c. 2014 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

8. Internal Control

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

10. 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:  ______________________

11. 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:  __________________________________

12. Control Environment

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

14. Control Procedures

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

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

17. 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:  ________________________

18. c. 2014 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

19. _______________ 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.

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

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

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

23. 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.

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

25. 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 _________.

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

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

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

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

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

31. c. 2014 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

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

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

34. c. 2014 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

35. 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 ___________ ___________.

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

37. Bank Reconciliation

38. 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 $3,359.78.

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

40. Step 2 Power Networking Bank Reconciliation o A deposit on July 31 of $816.20 is not recorded on the bank statement.

41. Bank’s Records Power Networking’s Records ______ ______ $3,359.78 Add: $4,175.98 Step 2 Power Networking Bank Reconciliation

42. 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.

43. Bank’s Records Power Networking’s Records Step 3 Add deposit ____ ________ by bank $4,175.98 Cash balance$_________ Deduct outstanding checks: No. ____$ ______ No. ____ ______ No. ____ ______ Power Networking Bank Reconciliation

44. Add deposit not recorded by bank 816.20 $4,175.98 Bank’s Records Power Networking’s Records Cash balance$3,359.78 Deduct outstanding checks: No. 812$1,061.00 No. 878435.39 No. 883 48.60 1,544.99 $ ________ balance Step 4 Power Networking Bank Reconciliation

45. Step 5 Power Networking Bank Reconciliation o The cash balance in Power Networking’s ledger on July 31 is $2,549.99.

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

47. 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.

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

49. 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.

50. Bank’s Records Power Networking’s Records Deduct: $300.00 ______ Step 7 Power Networking Bank Reconciliation ______ balance$ _______ Add: _____ and _______ _______ by bank

51. Error Power Networking Bank Reconciliation o Check No. 879 for $732.26 to Taylor Company on account was erroneously recorded in the journal as $723.26. 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.)

52. Bank’s Records Power Networking’s Records ____ _________ Chk. No. 879______ ______ Power Networking Bank Reconciliation Deduct: NSF check$300.00 _____ _____ ________ 18.00 ______ balance$ _______ Add: _____ and _______ _______ by bank

53. Bank’s Records Power Networking’s Records Cash balance$2,549.99 Add note and interest collected by bank 408.00 $2,957.99 Deduct check NSF$300.00 Bank service charges18.00 Error recording Chk. No. 879 9.00327.00 $ _______ Step 8 Power Networking Bank Reconciliation

54. Bank’s Records Power Networking’s Records Add deposit not recorded by bank 816.20 $4,175.98 Cash balance$3,359.78 Cash balance$2,549.99 Deduct outstanding checks: No. 812$1,061.00 No. 878435.39 No. 883 48.60 1,544.99 Add note and interest collected by bank 408.00 $2,957.99 Deduct check NSF$300.00 Bank service charges18.00 $2,630.99 Adjusted balance $2,630.99 Adjusted balance ______ Error recording Chk. No. 879 9.00327.00 Power Networking Bank Reconciliation

55. c. 2014 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

56. _______ _______ 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 _______ _______ _______.

57. 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 _______.

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

59. c. 2014 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

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

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

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

63. c. 2014 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

64. 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 =

65. 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

66. c. 2014 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