ACTG 2010 Lecture Notes - Lecture 3: Market Liquidity, Cash Flow Statement, Current Asset

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1 Dec 2017

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Cash, receivables, and the time value of money. Internal controls are the policies and procedures that management implements to protect an entity"s assets and ensure the integrity of the accounting information system. Strong internal controls provide assurance to stakeholders that the entity"s assets can"t be stolen, used inappropriately, or used without proper authorization, and that the information produced by the accounting system can be relied on. Strong internal controls are extremely important because without them actions that could be very detrimental to the profitability and survival of the entity could occur. For example, theft by employees and customers can cost a company a large amount of money. Segregation of duties means that people who handle an asset shouldn"t also be responsible for record keeping for that asset. If duties aren"t segregated, an employee may be able to steal cash and cover up the theft by making fictitious entries to the accounting records.

Related Questions

Solve the following QS and Exercises from your textbook in chapter 8.

QS 8-1

Internal control objectives

An internal control system consists of all policies and procedures used to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies. Evaluate each of the following statements and indicate which are true and which are false regarding the objectives of an internal control system.

____	1.	Separation of recordkeeping for assets from the custody over assets is intended to reduce theft and fraud.
____	2.	The primary objective of internal control procedures is to safeguard the business against theft from government agencies.
____	3.	The main objective of internal control procedures is best accomplished by designing an operational system with managerial policies that protect the assets from waste, fraud, and theft.
____	4.	Separating the responsibility for a transaction between two or more individuals or departments will not help prevent someone from creating a fictitious invoice and paying the money to herself or himself.

QS 8-2

Cash and equivalents

Choose from the following list of terms/phrases to best complete the following statements.

a.	Cash
b.	Cash equivalents
c.	Outstanding check
d.	Liquidity
e.	Bank reconciliation
f.	Current assets

____	1.	The category includes currency and coins along with amounts on deposit in bank accounts, checking accounts, and savings accounts.
____	2.	The term __________ refers to a companyâs ability to pay for its near-term obligations
____	3.	The __________ category includes short-term highly liquid investment assets that are readily convertible to a known cash amount and sufficiently close to their due dates so that their market value is not sensitive to interest rate changes.

QS 8-3

Internal control for cash

A good system of internal control for cash provides adequate procedures for protecting both cash receipts and cash disbursements. Identify each of the following statements as either true or false regarding this protection.

____	a.	A basic guideline for safeguarding cash is that all cash receipts be deposited weekly or monthly.
____	b.	A voucher system of control is a control system exclusively for cash receipts.
____	c.	A basic guideline for safeguarding cash is to separate the duties of those who have custody of cash from those who keep cash records.
____	d.	A petty cash system is not a control procedure for safeguarding cash.

QS 8-4

Petty cash accounting

The petty cash fund of the Brooks Agency is established at $150. At the end of the current period, the fund contained $28 and had the following receipts: film rentals, $24; refreshments for meetings, $46 (both expenditures to be classified as Entertainment Expense); postage, $30; and printing, $22. Prepare journal entries to record (a) establishment of the fund and (b) reimbursement of the fund at the end of the current period.

Identify the two events from the following that cause a Petty Cash account to be credited in a journal entry.

____	a.	Fund amount is being reduced
____	b.	Fund amount is being increased
____	c.	Fund is being eliminated
____	d.	Fund is being established

Exercise 8-13^A

Documents in a voucher system

Match each document in a voucher system in column one with its description in column two.

Document

1.	Purchase requisition
2.	Purchase order
3.	Invoice
4.	Receiving report
5.	Invoice approval
6.	Voucher

Description

____	A.	An itemized statement of goods prepared by the vendor listing the customerâs name, items sold, sales prices, and terms of sale.
____	B.	An internal file used to store documents and information to control cash disbursements and to ensure that a transaction is properly authorized and recorded.
____	B.	An internal file used to store documents and information to control cash disbursements and to ensure that a transaction is properly authorized and recorded.
____	C.	A document used to place an order with a vendor that authorizes the vendor to ship ordered merchandise at the stated price and terms.
____	D.	A checklist of steps necessary for the approval of an invoice for recording and payment; also known as a check authorization.
____	E.	A document used by department managers to inform the purchasing department to place an order with a vendor.
____	F.	A document used to notify the appropriate persons that ordered goods have arrived, including a description of the quantities and condition of goods.

Exercise 8-14^B

Record invoices at gross or net amounts

Piere Imports uses the perpetual system in accounting for merchandise inventory and had the following transactions during the month of October. Prepare entries to record these transactions assuming that Piere Imports records invoices (a) at gross amounts and (b) at net amounts.

Oct.	2	Purchased merchandise at a $3,000 price, invoice dated October 2, terms 2/10, n/30.
	10	Received a $500 credit memorandum (at full invoice price) for the return of merchandise that it purchased on October 2.
	17	Purchased merchandise at a $5,400 price, invoice dated October 17, terms 2/10, n/30.
	27	Paid for the merchandise purchased on October 17, less the discount.
		31Paid for the merchandise purchased on October 2. Payment was delayed because the invoice was mistakenly filed for payment today. This error caused the discount to be lost. Please provide all the answer thank you

tanmouse0

50. Tenkey Book Company operates a chain of retail bookstoresthroughout the United States. Sandra Hawthorn, Tenkeyâs controller,runs a fairly tight internal control system, with rigorousrequirements for the segregation of duties throughout the company.Even the best systems can have problems, and recently someonecalled in a tip to the companyâs anonymous hotline saying thatTenkey was losing a lot of inventory to employee theft and that theproblem was pervasive through many of the company stores. Thecaller left no details as to who was committing the thefts or howthey were being committed. Sandra was alarmed because inventoriesconstituted a large percentage of Tenkeyâs assets, and if lossescould occur in even one store, they could probably occur in otherstoo. She called a staff meeting that included the IT director andthe general accounting manager. âWe need a plan to investigatethis,â she told them. âAny suggestions.â Tom Clockspeed, the ITdirector, jumped right in. âLetâs do a complete inventory of all ofour stores,â he said. Anna Aburida, the general accounting manager,began shaking her head. âWeâre not due to take inventory foranother six months. It would cost us a whole lot of overtime if wedo it now.â Sandra glared at Anna and said, âYouâre just going tohave to do better than that.â âOkay,â said Anna. âWe need a plan.Letâs start by considering likely suspects. Then we can evaluatethe internal controls surrounding everyone who might be in aposition to steal. There has to be a weak point somewhere.â âThisis a little crazy,â said Tom. âYouâre making all of these planswhen weâre not even sure if the phone caller was telling the truth.Letâs at least do an inventory of one store before we do anythingelse.â Anna frowned. âThatâs great Tom. So what happens if weinventory one store and donât find any inventory shortage? Thenwhat do we do?â Tom slid back in his seat and laughed. âRight,â hesaid. âBut what happens next if you donât find any controlproblems? Then weâve just wasted time. And even if you do findcontrol problems, thereâs no guarantee that fixing them will fixthe problem. And remember, we donât even know for sure if we dohave a problem. Sandra pounded her fist on the table. âThis isgoing nowhere. Iâm going to bring in a forensic accountant to findout what to do.â a. If you are brought in as Sandraâs outsideforensic accountant, what advice would you give her? b. Whichemployees could be stealing inventory? Describe one or two possibleschemes applicable to this case.

raspberrygoat496

Robatelli's Pizzeria Case StudyIntroduction On the morning of October 31st, Elaine Black, Chief Information Officer at Robatelli's Pizzeria, was waiting for both Jim Saxton, database administrator, and Peter Greyton, operations manager, to come to her office for a meeting. While waiting, Elaine was thinking about the surge of telephone and Internet orders expected to be received through the company's customer order center within the next 12 hours. Halloween had always been the most popular day of the year for people in the greater Pittsburgh area to order pizza from Robatelli's. There were 53 restaurant locations to serve these customers, but only one location to receive all of the orders and forward them to the right restaurant. Elaine's thoughts were interrupted as Jim and Peter entered her office. The following conversation took place: ELAINE Well, guys, it's here again, our biggest day of the year. Not only is Halloween a busy day, but we have the upcoming day after Thanksgiving, the week before Christmas, and Super Bowl Sunday. Can our current computer system's infrastructure and people keep pace with the orders we expect? JIM I think our systems are all running at peak performance. We shouldn't have any computer concerns for today or those other busy days. PETER Everyone in the customer order center is focused on making sure that our customers get their pizzas as ordered. We have plenty of people scheduled to work tonight, so we're good to go. ELAINE Terrific. But every time we face one of these peak sales days, I start wondering about the long-term capacity and effectiveness of our computer systems. Jim, we need to think long term about our computer system. I was just reading an article that I'd like you to take a look at. It's about Anheuser-Busch Companies and their use of data mining. JIM I do agree with you, Elaine; we should always be thinking about how newer IT systems can help us. Could you e-mail me the link to the article? ELAINE Sure, and I would like you to think about how we might use the same approach in our business. Peter, your order center people are doing a great job, but again there's something I'd like us to think about in the long run. As you know, we now have to manually enter all customer order center sales and store sales into our general ledger (GL). I think we could improve a lot of things if those sales are automatically fed into our GL software. Why don't you think about any advantages you see for an automatic interface, and we'll look at the costs compared to those advantages. How's that sound? PETER I'll do that. I'll give it some thought and work on a report about an automatic interface between our GL software and the point of sale systems in our restaurants as well as the phone and Internet sales. How soon do you want to meet again to look at these issues? ELAINE Let's say, in two weeks at the same time. As Jim and Peter left her office, Elaine continued to think about the features of the company's accounting information systems and whether or not data extracted from these systems could facilitate the multiple needs of the company. The focus had always been on providing accurate financial accounting information from the various locations; however, the company's aggressive growth strategies meant increased emphasis on the system's ability to analyze detailed customer information that could be translated into increased sales opportunities. Elaine knew the challenges they faced could very well affect the company's ability to maintain its competitive advantage. She realized that her department must continually improve the company's information systems to help it achieve growth strategies. Operating state-of-the-art systems was imperative to position the company to execute those growth plans. However, she was concerned about the possibility that restrictions of the current information systems could actually prevent the company from doing what it wanted to do. Allowing restrictive systems to prevent them from achieving business strategies was a risk that Elaine would not tolerate!

Review the Robatelli's Pizzeria Case Study.

Develop an internal controls system in Robatelli's Pizzeria sales and cash business areas.

Prepare a 12- to 16-slide presentation describing the typical activities and outlining an effective system of internal controls for the Sales, Sales Returns, and Cash Collections business areas. Include any associated risks in these areas.

Describe specific internal controls that include authorization of transactions, segregation of duties, adequate records and documentation, security of assets, and independent checks and reconciliation for each business area.

ACTG 2010 Lecture Notes - Lecture 3: Market Liquidity, Cash Flow Statement, Current Asset

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