ACCT 200 1st Edition Lecture 8Outline of Last Lecture I. Review of activity 2 answersII. Classified balance sheetIII. Review of adjusting journal entriesIV. E 3-14 a&bV. Closing entriesOutline of Current Lecture I. 1-Step Income StatementII. Activity 3 answersIII. Internal ControlsIV. E 4-4V. CashVI. ReconcilingVII. 4-2 AVIII. Petty CashCurrent LectureExam study tips:Study guide on Blackboard, go to office hours, do LearnSmart self-study review questions (on Blackboard: Course Material folder, LearnSmart, self-study)1-Step Income StatementRevenuesExpensesTotal ExpensesNet IncomeActivity 3 Answers:Adjusting Journal Entries1. Insurance expense dr 3000, prepaid insurance cr 30002. Depreciation expense dr 3000, accumulated depreciation cr 30003. Wages expense dr 3000, wages payable cr 30004. Unearned revenue dr 4900, service revenue cr 4900Page 2:Net income: $11,900Total assets: $123,900Total current liabilities: $28,000Internal Controls:Know basic what, when, and companies of Sarbanes-Oxley Act (SOX) of 2002Misuse of company resources includes wasting your time at work – being on Facebook, sending personal emails through work address, etcMonitoring is when managers make sure employees are doing what they’re supposed to do and aren’t using loopholesExamples of control activities (read in book too):Preventive controls:1. Separation of duties – 1 person per job to pinpoint who is causing problems2. Physical controls – such as locks, passwords, security cameras3. Proper authorization – limit access to information4. Employee management – supervision and trainingDetective controls:1. Reconciliations – keeping inventory 2. Performance reviews – management giving feedback for improvementCEO and CFO are ultimately responsible for the company’s internal controlsErrors are more likely than fraudWho you hire is all-importantE 4-4Which internal control is being violated?1. Reconciliations2. Physical controls3. Separation of duties4. Reconciliations5. Nothing violated6. Proper authorization(good example of an exam question)Cash:Won’t use cash equivalents in this class, but they are mini short-term investments to earn a little interestSeparation of duties is very important in handling cashCash disbursement=payment Payments (disbursements) need proper authorization and invoiceRead slides 4-19 and 4-20, know “timing differences” from slide 4-21Reconciling:Deposit in transit – deposit taken to bank after the day’s processing time (deposit at 4 PM today; get deposit inaccount tomorrow)Slide 4-24 is importantNSF is a bounced check from a customer (non-sufficient funds)In this class, banks won’t make errors, just companiesExample of an error by a company – recorded a deposit or check incorrectlyNote receivable and related interest – cash collected directly by the bank and then notification is sent to the companyService charges – service fee expense for processing transactions (debit and credit cards)When adjusting the company’s cash balance, all items on the book side need journal entriesBank Side Book SideStart w/bank statement balance Start w/check book balanceAdd deposits in transit Deduct NSFDeduct outstanding checks Deduct service fee expenses/chargesAdd notes collected by bank Add interest related to notes receivable+/- errors madeAdjusted bank balance = Adjusted book balanceKNOW: NSF check: dr accounts receivable, cr cashService fee expense: dr service fee expense, cr cashNotes receivable: dr cash, cr notes receivable4-2ADeposits in transit 1100Outstanding checks 1700Bank statement balance 10,350Check book balance 6800NSF check 300Interest earned 150Note collected 5000Interest on note 200Service charges -100ETF not recorded -1200Check 323 was written for 2800 and recorded for 2000Bank balance Book balanceBank balance 10,350 Check book balance 6800+deposit in transit +1100 -NSF check -300-outstanding checks -1700 +interest earned +150+note, interest collected +5200-service fee expense -100-online check -1200-check error -800Adjusted bank balance 9750 = Adjusted book balance 9750Petty cash:Small amount of cash on hand, not too muchKnow categories of cash flow for exam (activities on cash flows
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