Page 331 - Accounting Principles (A Business Perspective)

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8. Control of cash

Learning objective

After studying this chapter, you should be able to:
• Describe the necessity for and features of internal control.
• Define cash and list the objectives sought by management in handling a company's cash.
• Identify procedures for controlling cash receipts and disbursements.
• Prepare a bank reconciliation and make necessary journal entries based on that schedule.
• Explain why a company uses a petty cash fund, describe its operations, and make the necessary journal

entries.
• Analyze and use the financial results-quick ratio.
A career in forensic accounting
This chapter emphasizes the importance of having effective internal controls in every business. Unfortunately,

many smaller companies do not heed this advice. Failure to implement adequate internal controls can result in
financial statement fraud (purposely misstated financial statements) or embezzlement (theft). This is when the
services of a forensic accountant may be necessary. Forensic accounting is the application of accounting
methodology to legal issues. It is frequently associated with the investigation of civil or criminal white-collar crime
such as fraud, embezzlement, and general abuse of funds issues. Typical tools used in forensic accounting are bank
records, personal financial statements, interviews, and credit reports. The forensic accountant's responsibility is to
gather and analyze the evidence and deliver clear, accurate, and unbiased reports reflecting the results of the

investigation. Forensic accounting is commonly performed by Certified Fraud Examiners (CFEs). CFEs have
extensive training and possess special expertise in investigation and interview techniques specifically designed to
detect or prevent fraud.
A well-known agency performing forensic accounting in the United States is in the Federal Bureau of
Investigation (FBI). You can learn more about the FBI from their homepage at www.fbi.gov. Click on employment
in the 'About Us' section and then click on special agent employment to learn more about what it takes to be an FBI
special agent. Did you know that the fastest track to becoming an FBI agent is with an accounting undergraduate
degree? There are four entry programs for becoming an FBI special agent: accounting, law, language, and
diversified. Law requires an undergraduate degree and a law degree, language requires an undergraduate degree

and proficiency in a second language, and diversified requires three years of work experience beyond an
undergraduate degree. The only entry program requiring only an undergraduate degree is one with an
undergraduate accounting option. Why accounting? Because an ever-increasing portion of crimes investigated by
the FBI are white-collar crimes where accounting knowledge is essential.
In a small corporation the president might make all the important decisions and will usually maintain a close
watch over the affairs of the business. However, as the business grows and the need arises for additional employees,
officers, and managers, the president begins to lose absolute control. Realizing that precautions are necessary to

protect the company's interests, the company establishes an internal control structure at this point.

Accounting Principles: A Business Perspective 332 A Global Text