Internal Control - PowerPoint PPT Presentation

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Internal Control

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Responsibility for related activities is assigned to different individuals ... Locks, alarms, safes, passwords. Principles of Internal Control (3) ... – PowerPoint PPT presentation

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Title: Internal Control


1
Internal Control
  • Methods and measures designed to
  • Safeguard the assets of a business
  • From theft or unauthorized use
  • Improve the accuracy and reliability of the
    accounting records
  • reduce the risk of errors and irregularities

2
Principles of Internal Control (1)
  • Establishment of responsibility
  • Only one person is responsible for a given task
  • Segregation of duties
  • Responsibility for related activities is assigned
    to different individuals
  • Responsibility for keeping records of an asset is
    separated from physical custody of the asset

3
Principles of Internal Control (2)
  • Documentation procedures
  • All documents should be pre-numbered and
    accounted for
  • Physical, mechanical electronic controls
  • Locks, alarms, safes, passwords

4
Principles of Internal Control (3)
  • Independent internal verification
  • Review, comparison reconciliation of data
    prepared by employees
  • Done on a surprise basis
  • Performed by an employee who is independent of
    the personnel responsible
  • Other controls
  • Bonding
  • Rotation of duties mandatory vacations

5
Bank Reconciliation
  • Use of bank account helps safeguard cash
  • minimizes need to keep cash on hand
  • provides for a double record of transactions
  • Reconciliation of bank statement with company
    records provides check on accuracy of company
    records
  • may also discourage theft

6
Bank Reconciliation Format
  • Balance per bank statement
  • Deposits in transit
  • - Outstanding checks
  • /- Bank errors
  • Correct cash balance
  • Balance per general ledger
  • Amounts collected by bank for business
  • - Bank charges
  • - NSF checks returned
  • /- Errors in recording
  • Correct cash balance

7
Principles of Cash Management
  • Increase speed of collection of receivables
  • Keep inventory levels low
  • Delay payment of liabilities
  • Plan timing of major expenditures
  • Invest idle cash

8
Cash Budgeting
  • Plan for the cash needs of a business
  • Projects future cash receipts and disbursements
  • Predicts future cash needs so that the business
    can arrange financing

9
Cash Budget Format
  • Beginning Cash Balance
  • Add Expected cash receipts
  • From customers, investment returns, etc
  • Deduct Expected cash disbursements
  • For expenses, capital expenditures, etc
  • Cash excess or deficiency
  • Financing Borrowing or repayments
  • Ending Cash Balance
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