Survey of accounting 6e chapter 5

Sarbanes-Oxley, Internal
Control, and Cash

Chapter
5

©2013 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.

•

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.

©2013 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
Objective 1
Describe the Sarbanes-Oxley Act and
its impact on internal controls and
financial reporting

©2013 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

©2013 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
Objective 2
Describe and illustrate the objectives
and elements of internal control

©2013 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

____________
__________

____________
___________

_______________
_______ ____
____________

©2013 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
•
•
•
•
•

___________________
___________________
___________________
___________________
___________________

Exhibit 6: Elements of Internal Control

___________

______

___________

______

_________
__________

©2013 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:
•Management’s ________ and __________
•The company’s __________ ______
•The company’s ________ _______

©2013 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
_________ ____ ____ _________ ____
__________ _____ ______ ______.

©2013 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.
©2013 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 _______
effectiveness.
• Includes ________ efforts
and ________ evaluations.

©2013 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
____________
____________

____________
__________

__________

____________
___________

©2013 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

______________

_____________________

©2013 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
Objective 3
Describe and illustrate the application

of internal controls to cash

©2013 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

©2013 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

©2013 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
Remittance Advice

Person Opening Mail

Check

Deposit

©2013 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

Customer Bank

Company Bank

©2013 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 Over Cash Payments

_____________
________ _________ and
_______________
___________

________ voucher
entered to ______

______ issued to
________

©2013 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
Objective 4
Describe the nature of a bank
account and its use in controlling
cash.

©2013 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 and its use
for controlling cash

©2013 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
Objective 5
Describe and illustrate the use of a bank
reconciliation in controlling cash

©2013 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

©2013 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
Exhibit 6: Bank Reconciliation for Colter Inc.

1.
2.
3.
4.
5.
6.
7.
8.
9.

_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________

©2013 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
Objective 6

Describe the accounting for specialpurpose cash funds

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part.