AC 210 Lecture Notes - Lecture 33: Embezzlement, Money Market Fund, Market Liquidity

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silvercicada472

5 Jun 2018

School

University of Alabama

Department

Accountancy

Course

AC 210

Professor

Lisa Mc Kinney

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Cash Controls

Cash is a company's most liquid asset, which means it can easily be used to acquire

other assets, buy services, or satisfy obligations. For financial reporting purposes, cash

includes currency and coin on hand, money orders and checks made payable to the

company, and available balances in checking and savings accounts. Most companies

report cash and cash equivalents together. Cash equivalents are highly liquid, short‐

term investments that usually mature within three months of their purchase date.

Examples of cash equivalents include U.S. treasury bills, money market funds, and

commercial paper, which is short‐term corporate debt.

Cash is a liquid, portable, and desirable asset. Therefore, a company must have

adequate controls to prevent theft or other misuses of cash. These control activities

include segregation of duties, proper authorization, adequate documents and records,

physical controls, and independent checks on performance.

• Segregation of duties. Cash is generally received at cash registers or through

the mail. The employee who receives cash should be different from the employee

who records cash receipts, and a third employee should be responsible for

making cash deposits at the bank. Having different employees perform these

tasks helps minimize the potential for theft.

• Proper authorization. Only certain people should be authorized to handle cash

or make cash transactions on behalf of the company. In addition, all cash

expenses should be authorized by responsible managers.

• Adequate documents and records. Company managers and others who are

responsible for safeguarding a company's cash assets must have confidence in

the accuracy and legitimacy of source documents that involve cash. Important

documents such as checks, are prenumbered in sequential order to help

managers ascertain the disposition of each document. This helps prevent

transactions from being recorded twice or from not being recorded at all. In

addition, documents should be forwarded to the accounting department soon

after their creation so that recordkeeping can be handled professionally and

efficiently. Allowing documents that describe cash transactions to go unrecorded

for an unnecessarily long period of time increases the likelihood that fraudulent or

inaccurate records will pass undetected through the accounting department.

• Physical controls. Cash on hand must be physically secure. This is

accomplished in a variety of ways. Cash registers should contain only enough

cash to handle customer transactions. When a cashier finishes a shift—or

perhaps more frequently—excess cash should be moved from cash registers to a

safe or another location that provides additional security. In addition, daily bank

deposits are made so that excess cash does not remain on the premises. Blank

checks, which can be used for forgery, are stored in locked, fireproof files.

• Independent checks on performance. Employees who handle cash or who

record cash transactions must be prepared for independent checks on their

performance. These checks should be done periodically and may be done

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Document Summary

Cash is a company"s most liquid asset, which means it can easily be used to acquire other assets, buy services, or satisfy obligations. For financial reporting purposes, cash includes currency and coin on hand, money orders and checks made payable to the company, and available balances in checking and savings accounts. Most companies report cash and cash equivalents together. Cash equivalents are highly liquid, short commercial paper, which is short term corporate debt. term investments that usually mature within three months of their purchase date. Examples of cash equivalents include u. s. treasury bills, money market funds, and. Cash is a liquid, portable, and desirable asset. Therefore, a company must have adequate controls to prevent theft or other misuses of cash. These control activities include segregation of duties, proper authorization, adequate documents and records, physical controls, and independent checks on performance: segregation of duties. Cash is generally received at cash registers or through the mail.

Related Questions

4)Managers place a high priority on internal control systems because the systems assistmanagers in all of the following except:

A)Protecting assets.

B)Urging adherence to company policies.

C)Promoting efficient operations.

D)Ensuring reliable accounting.

E)Assuring that no loss will occur.

5)A properly designed internal control system:

A)Insures profitable operations.

B)Eliminates the need for an audit.

C)Is not necessary if the company uses a computerized system.

D)Requires the use of non-computerized systems.

E)Lowers the company's risk of loss.

6)A company's internal control system:

A)Eliminates the need for audits.

B)Eliminates the need for managers' certification of controls.

C)Monitors company and employee performance.

D)Eliminates human error.

E)Eliminates the company's risk of loss.

7)The impact of technology on internal controls includes:

A)Elimination of fraud.

B)Elimination of the need to bond employees.

C)Reduced processing errors.

D)Elimination of separation of duties.

E)Elimination of the need for regular audits.

8)Internal control systems are:

A)Required only if a company plans to engage in interstate commerce.

B)Developed by the Internal Revenue Service for all U.S. companies.

C)Required by Sarbanes-Oxley (SOX) to be documented and certified if the

company's stock is traded on an exchange.

D)Developed by the Securities and Exchange Commission for public companies.

E)Developed by the Small Business Administration for non-public companies.

9)Cash equivalents:

A)Include 6-month certificates of deposit.

B)Are short-term, highly liquid investment assets.

C)Include money orders.

D)Include checking accounts.

E)Are recorded in petty cash.

10)Cash equivalents meet all of the following criteria except:

A)Include short-term investments purchased within 3 months of their maturity

dates.

B)Are readily convertible to a known cash amount.

C)Have a market value that is not sensitive to interest rate changes.

D)Include short-term U.S. treasury bills.

E)Are more liquid than cash.

azureporcupine205

Solve the following QS and Exercises from your textbook in chapter 8.

QS 8-1

Internal control objectives

An internal control system consists of all policies and procedures used to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies. Evaluate each of the following statements and indicate which are true and which are false regarding the objectives of an internal control system.

____	1.	Separation of recordkeeping for assets from the custody over assets is intended to reduce theft and fraud.
____	2.	The primary objective of internal control procedures is to safeguard the business against theft from government agencies.
____	3.	The main objective of internal control procedures is best accomplished by designing an operational system with managerial policies that protect the assets from waste, fraud, and theft.
____	4.	Separating the responsibility for a transaction between two or more individuals or departments will not help prevent someone from creating a fictitious invoice and paying the money to herself or himself.

QS 8-2

Cash and equivalents

Choose from the following list of terms/phrases to best complete the following statements.

a.	Cash
b.	Cash equivalents
c.	Outstanding check
d.	Liquidity
e.	Bank reconciliation
f.	Current assets

____	1.	The category includes currency and coins along with amounts on deposit in bank accounts, checking accounts, and savings accounts.
____	2.	The term __________ refers to a companyâs ability to pay for its near-term obligations
____	3.	The __________ category includes short-term highly liquid investment assets that are readily convertible to a known cash amount and sufficiently close to their due dates so that their market value is not sensitive to interest rate changes.

QS 8-3

Internal control for cash

A good system of internal control for cash provides adequate procedures for protecting both cash receipts and cash disbursements. Identify each of the following statements as either true or false regarding this protection.

____	a.	A basic guideline for safeguarding cash is that all cash receipts be deposited weekly or monthly.
____	b.	A voucher system of control is a control system exclusively for cash receipts.
____	c.	A basic guideline for safeguarding cash is to separate the duties of those who have custody of cash from those who keep cash records.
____	d.	A petty cash system is not a control procedure for safeguarding cash.

QS 8-4

Petty cash accounting

The petty cash fund of the Brooks Agency is established at $150. At the end of the current period, the fund contained $28 and had the following receipts: film rentals, $24; refreshments for meetings, $46 (both expenditures to be classified as Entertainment Expense); postage, $30; and printing, $22. Prepare journal entries to record (a) establishment of the fund and (b) reimbursement of the fund at the end of the current period.

Identify the two events from the following that cause a Petty Cash account to be credited in a journal entry.

____	a.	Fund amount is being reduced
____	b.	Fund amount is being increased
____	c.	Fund is being eliminated
____	d.	Fund is being established

Exercise 8-13^A

Documents in a voucher system

Match each document in a voucher system in column one with its description in column two.

Document

1.	Purchase requisition
2.	Purchase order
3.	Invoice
4.	Receiving report
5.	Invoice approval
6.	Voucher

Description

____	A.	An itemized statement of goods prepared by the vendor listing the customerâs name, items sold, sales prices, and terms of sale.
____	B.	An internal file used to store documents and information to control cash disbursements and to ensure that a transaction is properly authorized and recorded.
____	B.	An internal file used to store documents and information to control cash disbursements and to ensure that a transaction is properly authorized and recorded.
____	C.	A document used to place an order with a vendor that authorizes the vendor to ship ordered merchandise at the stated price and terms.
____	D.	A checklist of steps necessary for the approval of an invoice for recording and payment; also known as a check authorization.
____	E.	A document used by department managers to inform the purchasing department to place an order with a vendor.
____	F.	A document used to notify the appropriate persons that ordered goods have arrived, including a description of the quantities and condition of goods.

Exercise 8-14^B

Record invoices at gross or net amounts

Piere Imports uses the perpetual system in accounting for merchandise inventory and had the following transactions during the month of October. Prepare entries to record these transactions assuming that Piere Imports records invoices (a) at gross amounts and (b) at net amounts.

Oct.	2	Purchased merchandise at a $3,000 price, invoice dated October 2, terms 2/10, n/30.
	10	Received a $500 credit memorandum (at full invoice price) for the return of merchandise that it purchased on October 2.
	17	Purchased merchandise at a $5,400 price, invoice dated October 17, terms 2/10, n/30.
	27	Paid for the merchandise purchased on October 17, less the discount.
		31Paid for the merchandise purchased on October 2. Payment was delayed because the invoice was mistakenly filed for payment today. This error caused the discount to be lost. Please provide all the answer thank you

tanmouse0

The independent auditor is allowed to use a specialist for evaluating a complicated financial transaction provided the specialist is

knowledgeable and independent of the audit client.

approved by the client's board of directors.

all of the above.

acceptable to the PCAOB.

Inappropriately dating transfers of funds between bank accounts to cover shortages of cash is properly referred to as

Cash equivalents

represent current assets that can be converted to cash within a year or an operating cycle, whichever is shorter.

include only cash and highly liquid investments that are virtually free of risk.

should be reported as investments and not be included as cash on the balance sheet.

typically exclude money market funds and treasury bills.

A cut-off bank statement primarily is used to

determine whether reconciling items on the year-end bank reconciliation have cleared the bank.

prepare a year-end bank reconciliation.

test for kiting.

confirm the year-end balance of cash.

An imprest cash account

typically is used for many large miscellaneous disbursements.

typically earns large amounts of interest.

is another name for the general cash account of an organization.

is an account containing a stipulated amount of money to be used for a specific purpose.

An auditor may estimate the appropriate amount of interest expense to be recorded by an audit client by multiplying the average debt by the average interest rate. If the auditor's estimate is considerably larger than the client's recorded interest expense this would be evidence of a potential

failure of the client to accrue interest expense at year end.

the violation of significant loan covenants.

overstatement of recorded interest expense.

understatement of long-term debt.

Internal controls over fixed assets in a smaller entity

usually include authorization by the board of directors.

typically will be very similar to internal controls over other assets within the entity.

must be the same as in larger entities.

are of little importance since fixed assets are not subject to theft or misuse.

A change in depreciation methods employed by an audit client resulting in a material change in depreciation expense

is not necessarily a violation of generally accepted accounting principles.

requires disclosure by the audit client in the footnotes to the financial statements.

must be noted in the audit opinion due to lack of consistency.

is properly described by all of the listed statements.

Auditors typically assess inherent risk for material accounts requiring significant estimates as

Which of the following loans from an audit client, which is a financial institution, made in accordance with the normal lending practices of the financial institution would impair the CPA's independence?

A loan fully secured by certificates of deposit from the same financial institution.

A credit card loan in which the balance carried forward each month does not exceed $9,000.

An automobile loan secured by the automobile.

A home loan equal to less than 50% of the home's value and collateralized by the home.

A CPA has obtained some original records from a client during the course of an audit engagement. At the completion of her audit according to the proper professional standards the client fired the CPA and demanded that the CPA return all of his original records immediately. Under these circumstances which of the following statements is most correct according to the AICPA Code of Professional Conduct?

The CPA may hold the original records she obtained until the client pays for the services she has completed.

The CPA must return only the original records of the client upon demand regardless of the circumstances.

The CPA must return all original records and all copies of original records of the client upon demand regardless of the circumstances.

This is a matter of state law and not a matter covered by the AICPA Code of Professional Conduct.

AC 210 Lecture Notes - Lecture 33: Embezzlement, Money Market Fund, Market Liquidity

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