Welcome to Week 7!
Financial Accounting: Chapter 4
Internal Control and Income Statements
Ashton Converse (kuang wei)
Objectives/Schedule
 Welcome
 Review
 Story Share
 Quiz
 Chapter 4 and Internal Control
 Ethics
 Quick Clip
 News Article
Do You Remember/Know
 What does closing the books and closing the entries mean?
 What is liquidity?
 Give me an example of a highly liquid asset.
 What does report format mean?
 Define the operating cycle of any company.
 What are 2 things internal control is used/designed to do?
 List 3 of the 6 components to designing a system of internal
control.
 What are the 2 ratios we use to evaluate our financing?
Time to Share Stories
 I NEED 5 people to share their wonderful story
that they made.
 All you will need to do is read your story for
everyone in front of the room.
 Reminder: Participation is required and helpful
for your final grade.
 So have fun and come on up and read!
Accounting Reminder
 All documents and records must be kept safe.
 It is good to number all documents and records and
put them in order
 This helps us see if anything is missing.
 The use of electronics and computers has helped
improve business.
 Keeps theft down by 50%
 Helps keep documents safer and more organized
Internal Control Continued
 Firewall
 What is a firewall? Do you know?
 Limits access to all the computer
 Encryption




Becoming even more popular
Used to safeguard assets
Puts data into an unreadable code through mathematics
Need a key…or the code
 Use any and all means to keep everything safe.
 Data, information, records, documents, cash, past, products
Internal Control Continued
What are some things that can limit internal control
being successful?
 Talk with each other for about 5 minutes.
 When done making lists we will discuss.
 Complexity can make problems
 Investments in internal control must be worth more
than the cost.
Converse about Concepts
 Check: do you know what this is?
 Document giving permission to a bank to give a
specific person or business a specific amount of
money.
 Bank Statement
 Document showing the beginning and ending
balances of a particular bank account
 Electronic Fund Transfer (EFT)
 System that transfers cash by electronic
communication rather than paper documents
 What are some examples of this?
Converse about Concepts
 Bank Reconciliation
 A document explaining the reasons for the difference
between a depositor’s records and the banks records
about the depositor’s cash.
 Two Records of a Business’s Cash
 The company’s Cash account on its own books (records)
 The bank statement, which shows the actual amount of
cash in the bank.
Items for Reconciliation
Problems that Arise
 There are “Items recorded by the company, but
have not yet been recorded by the bank.”
 There are “Items recorded by the bank but not yet
recorded by the company.”
 Then there are other miscellaneous errors that could
happen by the bank or the company
Controlling/Managing
Cash
 Physical receipts given to the cashier.
 Mail receipts (email or regular snail mail)
 The mail room employee forwards the remittance advices
to the accounting department, which debits Cash and
credits customers’ accounts receivable.
 A final review and check of work is done
 The control total from the mail room
 The bank deposit amount from the cashier
 The debit to Cash from the accounting department
Quick Term Look
 Petty Cash
 A fund containing a small amount of money
 Used to pay minor amounts
 Budget
 A quantitative expression of a plan that helps managers
coordinate the entity’s activities
 Looks towards the future period
 Used to look at actions and make decisions for the
present and the future.
Being Ethical
Ethics and Accounting
 Nearly all large companies have a code of ethics
designed to encourage ethical behavior by employees
 Accountants are expected to maintain higher
standards in society than others
 The ability of an accountant to do successful
business relies on their own reputation.
 Unacceptable actions can result in expulsion from
an organization…and make it hard to stay an
accountant
Conclude this Section
Managerial Decisions “Guidelines and Questions”
1. What is the ethical issue?
1. Why is this an ethical issue?
2. What are the options?
3. Who is involved in the situation?
4. What are the possible consequences?
5. What is the solution? (most important)