Generally Accepted Accounting Principles
The revenue recognition principle states that, under the accrual basis of accounting, you should only record revenue when an entity has substantially completed a revenue generation process; thus, you record revenue when it has been earned. The match inning (expense recognition) principle is one of the cornerstones of he accrual basis of accounting. Under this principle, when you record revenue, also record at the same time any expenses directly related to the revenue. Thus, if there is a cause-and-effect relationship between revenue and the expenses, record them in the same accounting period.
The materiality principle states tattoo are allowed to ignore an accounting standard if the net impact of doing so has such a small impact on the financial statements that a reader of the financial statements would not be misled. Accounting assumptions The going concern principle is the assumption that an entity will remain in cuisines for the foreseeable future. The monetary unit principle states that you only record business transactions that can be expressed in terms of a currency.
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The time period principle is the concept that a business should report the financial results of its activities over a standard time period, which is usually monthly, quarterly, or annually. The business entity concept states that you must separately record the transactions associated with a business from those of its owners or other businesses. Effective Internal Control Environment 1. Management integrity 2. Competent and ethical personnel: Selection/Good salaries/Training/Rotation 3.
Establishment of responsibilities: Organization chart – clear lines of authority, defined areas of responsibilities Delegation of authority for key activities Policies and Procedures 1. Proper authorization 2. Separation of duties Operations from accounting Custody of assets from accounting Authorization of transactions from custody of assets 3. Control of documents and records Adequate records of transactions (egg invoices, purchase orders, cheeses, stockpiles, journals and ledgers) Proper control (pre-numbering invoices and receipts, lock and key, PC swords) 4.
Electronic and computer controls Monitoring 1 . Supervision of Employees (all levels) Reduce temptation to steal or defraud company 2 Audits Internal Control of Cash 1. Using a bank account Receiving vs. paying cash [l physical handling of cash vs. accounting Accounting for cash receipts vs. accounting for cash payments 3. Cash receipt controls Physical controls (lock and key) Deposit cash receipts daily Counter-check cash receipts before depositing Match receipts per cash registers with bank deposit slips 4. Cash payment controls Approval for purchases to be separate from queue-signing
Proper documents to support payments Authority limits for queue-signing to be strictly adhered to Two signatories for cheeses 5. Bank reconciliation +1- corrections of bank errors +/- corrections of book errors = Adjusted bank balance = Adjusted book balance Bank reconciliation should be done by a person separate from the one handling receipts/ payments If duties cannot be separated, bank reconciliation should be reviewed by a supervisor 6. Petty cash controls Petty cash = small amount of cash kept on office premises to facilitate miscellaneous expo.