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7-10 Copyright © 2014 John Wiley & Sons, Inc. Weygandt Financial Accounting, 9/e, Instructor’s Manual (For Instructor Use Only)
Answer: Some common-sense approaches are to make sure only certain desig-
nated individuals can sign checks. In addition, make sure that different
personnel approve payments and make payments. The next chapter
disbursements.
H. Control Features: Use of a Bank.
1. The use of a bank contributes significantly to good internal control by:
deposits, documented by a deposit slip (ticket).
4. A bank statement shows:
account.
or a not sufficient funds check (NSF).
6. A credit memorandum may identify notes receivable collected by the bank
for the depositor and interest paid on checking account.
I. Reconciling the Bank Account.
2. Issued checks recorded by the company but that have not yet been paid
per bank.
reconciliation schedule.
4. List any unrecorded bank memoranda in the appropriate section of the
reconciliation schedule.
J. Reporting Cash.
2. Cash equivalents are short-term, highly liquid investments that are both:
to changes in interest rate.
3. Restricted cash is cash that is not available for general use but is
restricted for a special purpose. It should be reported separately on the
balance sheet as either a current or noncurrent asset.
A Look at IFRS
Fraud can occur anywhere. Because the three main factors that contribute to
fraud are universal in nature, the principles of internal control activities are used
globally by companies. While Sarbanes-Oxley (SOX) does not apply to non-U.S.
companies, most large international companies have internal controls similar to
those indicated in the chapter. IFRS and GAAP are also very similar in
accounting for cash. IAS No. 1 (revised). “Presentation of Financial Statements,”
is the only standard that discusses issues specifically related to cash.
KEY POINTS
The fraud triangle discussed in this chapter is applicable to all international
companies. Some of the major frauds on an international basis are
Parmalat (Italy), Royal Ahold (the Netherlands), and Satyam Computer
Services (India).
Rising economic crime poses a growing threat to companies, with nearly
one-third of all organizations worldwide being victims of fraud in a recent
12-month period. The survey data shows that the incidence of economic
immune (PricewaterhouseCoopers’ Global Economic Crime Survey, 2009).
Economic crime takes on many different forms, some more common than
others. The three most common types of economic crimes experienced in
the last 12 months were asset misappropriation, accounting fraud, and
bribery and corruption.
principles-based standards.
On a lighter note, at one time the Ig Nobel Prize in Economics went to the
Research (AIR), they are presented by a group that includes genuine Nobel
laureates at a ceremony at Harvard University’s Sanders Theater. (See
en.wikipedia.org/wiki/Ig_Nobel_Prize.)
Internal controls are a system of checks and balances designed to prevent
required under SOX.
Companies find that internal control review is a costly process but badly
needed. One study estimates the cost of SOX compliance for U.S.
companies at over $35 billion, with audit fees doubling in the first year of
compliance. At the same time, examination of internal controls indicates
(PricewaterhouseCoopers’ Global Economic Crime Survey, 2005).
The SOX internal control standards apply only to companies listed on U.S.
exchanges. There is continuing debate over whether foreign issuers should
have to comply with this extra layer of regulation.
The accounting and internal control procedures related to cash are
Cash is comprised of cash on hand and demand deposits.
Cash equivalents are short-term, highly liquid investments that are
readily convertible to known amounts of cash and which are subject to
an insignificant risk of changes in value.
statement of financial position.
LOOKING TO THE FUTURE
countries.
High-quality international accounting requires both high-quality accounting
standards and high-quality auditing. Similar to the convergence of GAAP and
IFRS, there is movement to improve international auditing standards. The
http://www.ifac.org/iaasb/.
Under proposed new standards for financial statements, companies would not be
allowed to combine cash equivalents with cash.
20 MINUTE QUIZ
Circle the correct answer.
True/False
1. An effective system of internal control will segregate functions between individuals to reduce
the potential for errors and fraud.
True False
2. When one individual is responsible for all of the related activities, the potential for errors and
fraud is increased.
True False
3. Independent internal verification should be made periodically and should be done by an
True False
4. The duties of receiving cash, recording cash receipts transactions, and having custody of
True False
5. At the end of an accounting period, a debit balance of $99.00 in the Cash Over and Short
True False
6. A check is a written order signed by the depositor directing the bank to pay a specified
sum of money to a designated recipient.
True False
7. Cash proceeds collected by the bank for a depositor would be identified in the bank
True False
8. The lack of agreement between the balance per books and the balance per bank is due
True False
9. An outstanding check that was also outstanding the previous month should not be included
in the reconciliation of the bank statement this month.
True False
10. A postage due expense of $4.75 would be paid out of petty cash and the entry to record
the transaction would reduce the balance of the Petty Cash account by that amount.
True False
Multiple Choice
1. Which of the following is a primary concern of internal control?
a. Promote training programs and control incentives
b. Enhancing the reliability of accounting data
c. Ensuring fairness of the financial statements
d. Encouraging adherence to prescribed managerial performance
2. Each of the following is an attribute of internal control except
a. segregation of duties.
b. establishment of responsibility.
c. independent internal verification.
d. a sound marketing plan.
ciliation, the $18 should be
a. deducted from the balance per bank.
b. added to the balance per bank.
c. deducted from the balance per books.
d. deducted from the balance per books and added to the balance per bank.
Cash in bank—savings account $4,000
Amounts due from customers 7,000
Post-dated checks 2,000
Checking account balance 6,000
Which amount should be reported as cash in the balance sheet?
a. $10,000
b. $6,000
c. $11,000
d. $13,000
replenishment would include a
a. credit to Cash for $81.
b. credit to Cash Over and Short for $2.
c. debit to Cash for $81.
d. debit to Cash Over and Short for $2.
ANSWERS TO QUIZ
True/False
Multiple Choice
