Chapter 2: Internal Control Flashcards Preview

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Flashcards in Chapter 2: Internal Control Deck (14)
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1

General ledger

Central database that includes all the accounting info that the company works with
Periodic summaries of transactions

2

Journal entries

Individual transactions recorded

3

T-accounts

Visual aid which help in keeping accounting database near and tidy

4

3 functions of accounting system

information system
security system
control system

5

Internal control

Process operated by governing body of the company to:
1. Safeguard firms assets
2. Ensure operational effectiveness and efficiency
3. Ensure reliability of information
4. Comply with laws and regulations

6

Internal control consists of five interrelated components:

Control environment
Risk assessment
Control activities
Information and communication
Monitoring

7

Control environment

Central aspect of internal control, factors include:
Integrity, values, competence, management philosophy, hierarchy etc.
(Company culture)

8

Risk assessment

Identification and analysis of risks to achievement of objectives, forming basis for determining how the risks should be managed

9

Control activities

Procedures that help ensure management directives are enacted to reach org. goals
e.g. segregation of duties, physical controls, analytical reviews, process controls

10

Information and communication

Important info must be collected and communicated from top management to personnel, urge employees to take control responsibilities seriously

11

Monitoring

Internal control system is continuously monitored, so that system performance can be evaluated

12

Internal auditing

Evaluation of effectiveness of internal control. Internal auditors responsible for ongoing effectiveness of the system in place

13

External auditing

Performed by independent party, tasks of external auditors are:
1. Evaluate adequacy of org internal control
2. Check that accounting database picks up all company activities
3. Check financial statements correct representation of accounting database

14

BIDE formula - Reconciliations

Beginning balance of account + Increase in account - Decrease in account = Ending balance of account
Tool to verify whether accounts are correct or not