chapter 7 financial accounting

1. opportunity

2. financial pressure

3. rationalization

factors that contribute to fraudulent activity

1. control environment

2. risk assessment

3. control activities

4. info and communications

5. monitoring

internal control requirements enacted under Sarbanes Oxley Act

1. safeguard assets

2. enhance reliability of accounting records

3. increase operations efficiency

4. ensure compliance of law

for short:

(operations, reporting, and compliance)

objectives of a system of internal controls

1. establishment of responsibility

2. segregation of duties

3. documentation procedures

4. physical controls

5. independent internal verification

6. human resource controls

examples of effective internal control procedures

cash

asset most susceptible to fraudulent activity

beginning cash balance per books

add: EFTS or income

less: NSF, fees, charges

how to calculate adjusted cash balance per books

electronic funds transfer (EFT)

uses wire, telephone, or computers to transfer funds from one location to another.

1. invoice

2. receiving report

3. purchase order

documents that are compared before a check authorization is issued

1. NSF

2. outstanding checks

3. bank fees

4. errors

less cash balance accounts in bank reconciliation for cash balance for books or banks

debit: accounts receivable

credit: cash

entry to record deposited customer check returned for insufficient funds

deposits in transit

deposits recorded by the depositor that have not been recorded by the bank