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Lecture Fundamental financial accounting concepts (8/e): Chapter 6 - Edmonds, McNair, Olds

Chapter 6 - Internal control and accounting for cash. In this chapter we will look at the importance of good internal controls for achieving enterprise objectives and accounting for cash. | Internal Control and Accounting for Cash Chapter Six McGraw-Hill/Irwin McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. In this chapter we will look at the importance of good internal controls for achieving enterprise objectives and accounting for cash. Internal Controls 6- The policies and procedures used to provide reasonable assurance that the objectives of an enterprise will be accomplished are called internal controls. Internal controls can be divided into two categories: (1) accounting controls are designed to safeguard company assets and ensure reliable accounting records; and (2) administrative controls are concerned with evaluating performance and assessing the degree of compliance with company policies and public laws. Key Features of Internal Control Separation of Duties Quality of Employees Bonded Employees Required Absences Procedures Manual Authority and Responsibility Prenumbered Documents Physical Control Performance Evaluations 6- Here is a listing of the nine major internal control features that we will discuss in detail on the following screens. Limitations Internal controls can be circumvented by collusion among employees. Two or more employees working together can hide embezzlement by covering for each other. No system can completely prevent fraud. 6- Regardless of how good a company’s internal control system may be, it can always be circumvented by collusion among two or more employees. When employees collude, they are able to cover for each other and make the embezzlement difficult to find. In recent years we have seen collusion at the highest levels of management. The intent of most of these plans was to make the company’s financial position look stronger than it actually was. Top management gained from the appreciation in the value of the company’s stock. Most of these managers had significant stock options as part of their compensation plan. Accounting for Cash . | Internal Control and Accounting for Cash Chapter Six McGraw-Hill/Irwin McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. In this chapter we will look at the importance of good internal controls for achieving enterprise objectives and accounting for cash. Internal Controls 6- The policies and procedures used to provide reasonable assurance that the objectives of an enterprise will be accomplished are called internal controls. Internal controls can be divided into two categories: (1) accounting controls are designed to safeguard company assets and ensure reliable accounting records; and (2) administrative controls are concerned with evaluating performance and assessing the degree of compliance with company policies and public laws. Key Features of Internal Control Separation of Duties Quality of Employees Bonded Employees Required Absences Procedures Manual Authority and Responsibility Prenumbered Documents Physical Control .