Last Modified: 2011-07-09
Related Textbooks:Introduction to Accounting: An Integrated Approach
Systems of control needed in order to carry on the business of an entity in an orderly manner
To safeguard its assets
To secure as far as possible the accuracy and reliability of its records
Promote operational efficiency
Provide accurate and reliable information
Encourage management and employees to comply with laws and regulation
2. Separation of duties
3. Maintaining adequate documents and records
4. Physical control over assets and documents
5. Independent checks on performance
By giving an employee the authority to carry out a particular policy, the company can hold that person accountable for its implementation
A good system of internal controls to prevent employees from performing more than 1 part of any business transaction
(authorization of transactions)
(handling cash, handling inventory, tools, or fixed assets, writing checks, receiving checks in mail)
(preparing source documents, maintaining journals, ledgers or other files, preparing reconciliations)
Pre-# to control missing docs and enable tracing
Constructed to promote correct prep
Pre-# docs & limit access to authorized employees
Calculate "industry accepted" ratios for your firm
Compare your performance to industry "norms"
Look for positive and negative trends.
external competitive figures
results from the prior period
against planned ratio goals
Creditors- usually to assess the risk (liquidity and solvency)
Owners- to eval the worth of their investment
Identify relationships between current assests and current liabilities
Provide basis for evaluation to meet current obligations (1. current ratio 2. quick ratio)
current assets must exceed its current liabilities so that current obligations can be met as they become due
Cash, marketable securities, A/R, Inventory, office supplies, and any of the prepays.
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