Fraud Elements
Financial Pressure
Internal Control
Methods and Measures adopted within an organization to safeguard it assets and Enhance the reliability of it accounting records, Increase Efficiency of operations and ensure compliance with laws and regulations.
Establishment responsibility
Control is most effective when one person is responsible for the task.
Segregation of Duties
Related activities different individuals.
Record keeping should be serrate from the physical custody.
Deposit in Transit
Deposits recorded by the depositor that have not been record by the bank.
Outstanding checks
Issued checks that have not been paid by the bank.
Who is responsible for management of Cash?
Basic Principles of Cash Management?
Increase speed of collection on receivables. Keep inventory levels low. Monitor Payment of Liabilities. Plan the timing of major expenditures. Invest idle cash.
Cash Budget
Shows anticipated cash flows, over one to two year period.
Primary elements of a Cash Budget
Cash receipts
Cash disbursements
Physical Control
Safeguard of assets and enhance the accuracy and reliability of the accounting records.
Evidence that transactions and events have occurred.
Independent Internal Verification
Review, Comparison, and reconciliation of data prepared by employees.
Human resource Controls
Bond employees who handle cash. Rotating employees duties and requiring employees to take vacations. Conduct through background checks.
Raw Materials
Basic goods that are used in production but have not yet been placed into production.
Work in Process
Portion of manufactured inventory that has been place into the production precess but is not yet complete
Finished Goods
Items that are completed and ready to sale
Just in Time
Goods are manufactured/purchased just in time.
Determined by the Terms of the Sale?
Legal Title
FOB Shipping Point
Goods are considered the Buyers property the entire time they are in transit.
FOB Destination
Ownership of the goods remains with the Seller until the goods reach the buyer.
Holding goods of other parties and try to sell the goods for them for a fee but without taking ownership.
Example of Lower Cost Market
Accounting concept of conservatism. Departure from the cost principle.
Company that sends their goos out to another company to sell.
Company selling the merchandise for the consignor.
Specific Identification
Company keep record of the original cost of each individual invetory item.
Earliest goods are first to be sold.
Latest goods purchased are the first to be sold.
Average Cost
Allocates the cost of goods available for sale. Assumes that all goods are similar in Nature.
Accounts Recieveble
Amounts Owned by Customers on account. Result from he sale of goods and services. Expected to be collected within 30-60 days. Usually the most significant type of claim held by a company.
Notes Receivable
Represent claims for which Formal instruments of credit are issued as evidence of Debt. Payment of Interest and extended from 60-90 days.
Allowance Method
Estimating uncollectible accounts at the end of each period.
Direct Write off Method
On date a specific stoma account is determined to be uncollectible, the uncollectible amount is charged debit. Customers individual account receivable is written off.
Bad Debt Expense
Actual losses from uncollectible.
Allowance for Doubtful Accounts
Estimated amount of customer accounts that are expected to become uncollectible in the future.
Cash Realizable Value
Net amount of cash expected to be received.
Percentage of Receivables
Promissory Note
Written promise to pay a specific amount of money on demand or at a definite time.
What is the party making the promise to pay
What is the party to whom the payment is to be made
What does the Promissory note also indicate
Date of note and date due
Honored note
Paid in full at maturity
Dishonored note
Not paid in full maturity
Maturity Value of a Note
Equal to the Face (principle) amount of the note plus the total Interest for the life of the note.
Principles of Sound Accounts Receivable Management
Determine whom to extend credit. Determine a Payment period. Monitor Collections. Evaluate liquidity of the receivables. Accelerate cash receipts from receivables when necessary.
Reasons for Sale of Receivables
Size. Only reasonable source of Cash. Billing and collections are often time consuming and costly.
What is a Factor
Finance company or bank that buys receivables from businesses for a fee and then collects the payments directly from the Customers.
What is the Direct method used for
Tax purposes