Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Wild, Shaw & Chiappetta: Fundamental Accounting Principles, 23rd Edition
8-1
CHAPTER 8
CASH, FRAUD AND INTERNAL CONTROLS
Related Assignment Materials
Student Learning Objectives
Questions
Quick
Studies*
Exercises*
Problems*
Beyond the
Numbers
Conceptual objectives:
C2. Define cash and cash
equivalents and explain how to
report them.
7, 10,11, 12,
13
8-2
8-3
8-1, 8-9
Analytical objectives:
A1 Compute the days' sales
8-8
8-12
8-1, 8-2, 8-9
Procedural objectives:
P1. Apply internal control to cash
receipts and disbursements.
9
8-3, 8-10
8-4, 8-7
8-5, 8-7
P3. Prepare a bank reconciliation.
8-5, 8-6, 8-7
8-8, 8-9,
8-10, 8-11
8-4, 8-5,
SP, ES
Wild, Shaw & Chiappetta: Fundamental Accounting Principles, 23rd Edition
8-2
Additional Information on Related Assignment Material
Connect
Available on the instructor’s course-specific website) repeats all numerical Quick Studies, all Exercises
and Problems Set A. Connect also provides algorithmic versions for Quick Study, Exercises and
Problems. It allows instructors to monitor, promote, and assess student learning. It can be used in
practice, homework, or exam mode.
Connect Insight
The first and only analytics tool of its kind, Connect Insight is a series of visual data displays that are each framed
The Serial Problem for Success Systems continues in this chapter.
General Ledger
Assignable within Connect, General Ledger (GL) problems offer students the ability to see how transactions post
from the general journal all the way through the financial statements. Critical thinking and analysis components are
added to each GL problem to ensure understanding of the entire process. GL problems are auto-graded and provide
instant feedback to the student.
Excel Simulations
Synopsis of Chapter Revisions
NEW opener—Robinhood and entrepreneurial assignment.
New image for certificate of bond coverage.
New discussion of controls over social media with reference to Facebook’s “mood” posts.
Wild, Shaw & Chiappetta: Fundamental Accounting Principles, 23rd Edition
8-3
Chapter Outline
Notes
I. Fraud and Internal Control
A. Purpose of Internal Control
An internal control system consists of policies and procedures
managers use to:
2. Ensure reliable accounting.
4. Uphold company policies.
B. Sarbanes Oxley Act (SOX)
C. Principles of Internal Control:
1. Establish responsibilities.
3. Insure assets and bond key employees.
5. Divide responsibility for related transactions.
7. Perform regular and independent reviews.
D. Technology, Fraud, and Internal Control
Technology allows quick access to information. Examples of how
technology impacts internal control:
1. Reduced processing errors.
2 More extensive testing of records.
4. Separation of duties – must be carefully distributed among
fewer employees.
E. Limitations of Internal Control
1. Human Element
Wild, Shaw & Chiappetta: Fundamental Accounting Principles, 23rd Edition
8-4
Chapter Outline
Notes
II. Control of Cash—Basic guidelines for control of cash and cash
equivalents include: handling of cash must be separate from
recordkeeping of cash, cash receipts are promptly deposited in bank,
and disbursements of cash are by check.
A. Cash, Cash Equivalents, and Liquidity
1. Liquidity refers to a company's ability to pay for its near term
obligations.
3. Cash equivalent (examples; short-term U.S. Treasury bills and
money market funds) are short-term, highly liquid investment
assets meeting two criteria:
B. Cash Management
1. Goals of Cash Management
2. Effective cash management principles:
a. Encourage collection of receivables
C. Control of Cash Receipts
Procedures for protecting cash received over-the-counter and by
mail:
D. Control of Cash Disbursements – to safeguard against theft:
Use a cash budget to summarize receipts and disbursements.
2. Deny access to the accounting records to anyone, other than
the owner, who has authority to sign checks.
Wild, Shaw & Chiappetta: Fundamental Accounting Principles, 23rd Edition
8-5
Chapter Outline
Notes
3. Voucher system of control establishes procedures for:
a. Verifying, approving and recording obligations for
4. Petty cash system of control:
a. Write and cash a check to establish petty cash fund.
Record as a debit to Petty Cash and credit to Cash.
(Use the Petty Cash account only when the fund is
established or size of fund is increased or decreased.)
III. Banking Activities as Controls
A. Basic Bank Services
Bank accounts permit depositing money for safeguarding and
helps control withdrawals. Electronic Funds Transfer (EFT) is an
electronic communication transfer of cash from one party to
another.
B. Bank Statement
Shows activities of a bank account and is used to prove the
accuracy of the depositor's cash records in preparing a bank
reconciliation.
1. Bank reconciliation –a report that explains (reconciles) the
2. Factors causing the bank statement balance to differ from the
depositor's book balance are:
Wild, Shaw & Chiappetta: Fundamental Accounting Principles, 23rd Edition
8-6
Chapter Outline
Notes
3. Steps in preparing the bank reconciliation:
a. Identify the bank balance of the cash account (balance per
bank).
b. Identify and list any unrecorded deposits (deposits in
transit) and any bank errors understating the bank balance.
4. Adjusting entries from a bank reconciliation
a. All reconciling additions to book balance are debits to
cash. Credit depends on reason for addition (Examples:
Wild, Shaw & Chiappetta: Fundamental Accounting Principles, 23rd Edition
8-7
Chapter Outline
Notes
IV. Decision Analysis—Days' Sales Uncollected
A. Also called days' sales in receivables.
V. Documents and Verification —Appendix 8A
Important documents of a voucher system of control include:
A. Purchase Requisition—lists the merchandise needed and requests
that it be purchased.
Wild, Shaw & Chiappetta: Fundamental Accounting Principles, 23rd Edition
8-8
VISUAL #8-1
BANK RECONCILIATION
Reasons for discrepancies between
bank statement balance and checkbook
balance: Handle as follows:
Unrecorded deposits Add to Bank Balance
Wild, Shaw & Chiappetta: Fundamental Accounting Principles, 23rd Edition
8-9
Chapter 8 Alternate Demonstration Problem
The Betsy Dough Company wants to prepare a bank reconciliation for the
month of June. When the bank statement for the month of June arrives
from the bank, the following steps are performed:
1. The deposits to the bank account, as recorded on the bank statement,
are compared to the deposit slips retained by the company. It is noted
2. Checks returned with the bank statement are compared to the checks
3. The ending balances on the statement and in the company’s books are
4. Other information contained on the bank statement, not previously
known to the company, is determined. This includes the following: (a) a
5. A bank reconciliation is prepared; it does not balance! The difference is
$18, so a transposition error is looked for (whenever the difference is a
multiple of 9, there is a very good chance that there has been an
Required:
Prepare a bank reconciliation for the Betsy Dough Company at June 30,
Wild, Shaw & Chiappetta: Fundamental Accounting Principles, 23rd Edition
8-10
Chapter 8 Solution: Alternate Demonstration Problem
BETSY DOUGH COMPANY
Bank Reconciliation
June 30, 2018
Bank Statement
Bank statement balance .............................................
$10,129
Depositor’s Books
Book balance of cash .................................................
$ 9,000
Add:
Adjusting entries Based on the Bank Reconciliation (made by depositor)
Cash………………………………………………………………. 218
