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Principles of Accounting Introduction to Accounting Understanding Financial Statements The Accounting Equation Financial Reporting Objectives Generally Accepted Accounting Principles Internal Control Analyzing and Recording Transactions Analyzing Transactions T Accounts Double-Entry Bookkeeping Journal Entries The General Ledger The Recording Process Illustrated The Trial Balance Adjustments and Financial Statements Adjusting Entries Accrued Revenues Accrued Expenses Unearned Revenues

Internal Control
Internal control is the process designed to ensure reliable financial reporting, effective and efficient operations, and compliance with applicable laws and regulations. Safeguarding assets against theft and unauthorized use, acquisition, or disposal is also part of internal control. C ontrol environment. The management style and the expectations of upper-level managers, particularly their control policies, determine the control environment. An effective control environment helps ensure that established policies and procedures are followed. The control environment includes independent oversight provided by a board of directors and, in publicly held companies, by an audit committee; management's integrity, ethical values, and philosophy; a defined organizational structure with competent and trustworthy employees; and the assignment of authority and responsibility. Control activities. Control activities are the specific policies and procedures management uses to achieve its objectives. The most important control activities involve segregation of duties, proper authorization of transactions and activities, adequate documents and records, physical control over assets and records, and independent checks on performance. A short description of each of these control activities appears below. Segregation of duties requires that different individuals be assigned responsibility for different elements of related activities, particularly those involving authorization, custody, or recordkeeping. For example, the same person who is responsible for an asset's recordkeeping should not be respon sible for physical control of that asset Having different indi viduals perform these functions creates a system of checks and balances. Proper authorization of transactions and activities helps ensure that all company activities adhere to established guide lines unless responsible managers authorize another course of action. For example, a fixed price list may serve as an official authorization of price for a large sales staff. In addition, there may be a control to allow a sales manager to authorize reason able deviations from the price list. Adequate documents and records provide evidence that financial statements are accurate. C ontrols designed to ensure adequate recordkeeping include the creation of invoices and other documents that are easy to use and sufficiently informa tive; the use of prenumbered, consecutive documents; and the timely preparation of documents. Physical control over assets and records helps protect the company's assets. These control activities may include elec tronic or mechanical controls (such as a safe, employee ID cards, fences, cash registers, fireproof files, and locks) or computer-related controls dealing with access privileges or established backup and recovery procedures.

Prepaid Expenses Depreciation The Adjustment Process Illustrated Financial Statements Completion of the Accounting Cycle The Work Sheet Closing Entries The Post-Closing Trial Balance The Accounting Cycle Reversing Entries Correcting Entries Accounting for a Merchandising Company Accounting Inventory Recording Sales Sales Returns and Allowances Sales Discounts Net Sales Inventory Systems Recording Purchases Returns and Allowances Purchases Discounts Net Purchases and Goods Purchased The Cost of Goods Available and Sold Gross Profit Financial Statements with Inventory Adjusting the Inventory Account Inventory Adjustments

Independent checks on performance, which are carried out by employees who did not do the work being checked, help ensure the reliability of accounting information and the efficiency of operations. For example, a supervisor verifies the accuracy of a retail clerk's cash drawer at the end of the day. Internal auditors may also verity that the supervisor performed the check of the cash drawer. In order to identify and establish effective controls, management must continually assess the risk, monitor control implementation, and modify controls as needed. Top managers of publicly held companies must sign a statement of responsibility for internal controls and include this statement in their annual report to stockholders.

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Closing Entries Updates Inventory Subsidiary Ledgers and Special Journals Subsidiary Ledgers Special Journals Cash Cash Controls The Petty Cash Fund Bank Reconciliation Credit Card Sales Receivables Receivables Defined Evaluating Accounts Receivable Estimating Bad Debts Allowance Method Factoring Receivables Notes Receivable Recording Notes Receivable Transactions Discounting Notes Receivable Inventory Determining Inventory Levels The Cost of Inventory The Valuation of Merchandise Inventory Systems: Perpetual or Periodic Inventory Subsidiary Ledger Accounts Cost Flow Methods Inventory Errors

and Financial Statements Estimating Inventories Operating Assets Operating Assets Defined The Cost of Property, Plant, Equipment Depreciation of Operating Assets Repairs and Improvements Disposition of Depreciable Assets Natural Resources Intangible Assets

Related Topics:
Accounting Principles II Economics Principles of Management

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