Audio Name: Jonah Beker - A Class 11

Duration: 83 minutes
NTEV-111 http://notetakingexpress.com/nte---feedback

DISCUSSION
Internal controls
● are related method in measures adopted within a company to help and achieve reliable
financial reporting affected in efficient operations and complying with relevant laws and
regulations
● they also help prevent and detect errors which cause unintentional misstatement
● effective way to prevent and detect fraud
● are very useful for large public companies
● it helps clean the company, test the controls in the organization to make them run
effectively efficiently which before external audit comes and reviews
Public company
● trades on stock exchange
● it requires an external audit
External Auditing
● it is very expensive
○ the more time of their job, the more expensive
Internal Audit and Internal Controls
● are useful because you have someone trying to clean up the company internally before it
gets to the external auditors
Materiality
Immateriality
Five Primary Components of Good Internal Control System
1. Control Environment
2. Risk Assessment
a. how you assist risk is on an impact likelihood scale
3. Control Activities
● it is very expensive to implement, such as;
○ to prevent fraud
○ prevent death
○ Others
● it includes:
○ authorization of transactions and activities
○ segregation of duties
○ documentation
Information and Communication
● deals of how information flows through to the organization
● monitoring the controls, control environment, etc.
Concept:
 ● when the organization changes, you need to put a new control and
always assist risk to make sure those risk is at the same level
4. Physical Control
5. Human Resources Controls
● ensuring appropriate hiring controls are in place
● no ghost employee
Concept:
● Control activities continues, specific control activity used by a company will depend on
the risk it 's facing and management assessments of those risks
Fraud
● intentional act to misappropriate, steal assets or to misstate financial statements
○ Misstatements
■ recording expenses as assets
■ overstating the useful life of assets
■ recording revenues that don’t exist
Example:
● Cash controls
Cash
● it is highly susceptible to theft
1. Coins
2. Currency
3. Checks
4. Money orders
5. Money on hand
6. Money in bank
7. Debit card
8. Bank credit card transactions
9. etc.
Cash Receipts
● over the counter, mail and electronic fund transfer receipts
Concept:
● Internal controls over cash receipt is more effective when cash receipts are
deposited to the bank daily or made by electronic fund transfer.
● Electronic fund transfer would be much safer.
Cash Payments
● Control activities over cash payments are more effective, when payments are made by
check or electronic fund transfer rather than in cash.
Good controls include:
1. two people signing checks
2. escalation - it is where certain amounts need a higher of authority signature for a check
to clear
Use of a Bank
 ● it safeguards cash by using a bank as a depository and a clear house for check received
in written
● minimizes the amount of currency that must be kept on hand
● provides a second record of transactions (one buy the business and one by the bank)
○ the two accounts can be reconciled
Understanding Debits and Credits
● Book Perspective
○ when you issue a check, it is a credit from the book
○ cash is an asset to the company and it is debited
○ deposits are debited
○ when you paid a supplier, cash is credited
● Bank Perspective
○ cash is credited
○ deposits are credited
○ paid a supplier, it is debited
Concept:
● The bank shows the reverse of the book because it is not their money.
Bank Reconciliation
● reconciles what the bank has their total for the company and what total the company
have
○ it should be the same
■ amount of bank shows
■ amount of the company shows in cash
What you will have:
1. Beginning balance for the books
2. Beginning balance for the bank
3. Ending balance on the books
4. Ending balance at the bank
Concepts:
● Beginning balance will be different and you are going to get the same ending
balance for the bank and the books.
● You will add and deduct certain things to the books and the same as to the bank.
Time locks (see correction 00:46:31)
● are the period after check is written and dated but not yet presented to or paid by the
bank (outstanding check)
● the period between receipts being recorded by the company and receipts being recorded
by the bank
Reconciling the bank account
● it reconciles the bank balance from the company’s bank account with the cash balance
from the general ledger (books)
○ they have to be the same
Concepts:
● Both books and the bank are reconciled to adjust, to correct for the correct cash balance.
 ○ There are additions and subtractions in both that will get you your new total.
Unadjusted Balance - two titles, additions and subtractions to get the adjusted balance
Service charges and payments - are deductions to the books
Errors
Example: it should be 255 and you recorded at 245
Deposit in Transits
● it increases bank’s balance
1. someone paid, etc.
Outstanding checks
● checks that you have issued for payments but are still outstanding, they haven’t cleared
by the bank yet
Errors on the bank
Reconciling Items Per the Bank
Deposits in Transit
Formula:
Beginning deposits
+ Deposits recorded in the company’s book
- Deposits recorded in this period
= Deposits at the end of the period
Bank statements - are deposits at the end of the period
Outstanding checks
Formula:
Beginning outstanding checks
+ Checks recorded in the company’s book
- Checks recorded in this period’s bank statements, errors
= Outstanding checks at the end of the period
Cash - it is the most liquid asset
Cash Equivalents
Concepts:
● If cash is in a deficit or overdraft at the end of the year, it is actually in the liability section.
● If you have a negative cash balance, it is a current liability.
Cash that is restricted;
● it is not available for general use
● it is recorded separately as a current or non-current asset
Managing cash;
● it increases collection or receivables
● you keep inventory loan to increase cash
● delayed payments of liability will keep (incomprehensible 01:04:39)
● planning and timing of major expenses
● investing cash that is set
● preparing cash budget

Multiple Choice Questions and Answers

1. Which one of the following is not a primary component of an internal control system
Answer: B
2. All of the following are examples of a control activity excepts;
Answer: C
3. A bank reconciliation should be prepared whenever the bank refuses to lend the deposit
or money, when an employee expected a fraud to explain any difference between a
depositor’s balance and a bank balance. What should be prepared?
Answer: C
4. Allowing only the treasurer to sign checks is an example of which control activity.
Answer: D
Segregation of duties - breaking down activities into multiple components,
where each person has a different responsibility
5. Which of the following that reconciliation would not require an adjusting entry?
Answer: outstanding checks

[01:10:22, Activity - bank reconciliation (page 380. 7-5A)]

[01:13:16 - 01:23:21, refer to the bank reconciliation provided in class]