9. Cash Flashcards
Suggest strategies on the internal controls over cash.
Segregation of duties
Make sure there is different employees to handle cash and recording duties.
Custody of cash
Secure cash and valuable items in a locked storage
Authorization
Obtain proper approvals for all payments from authorized personnel from at least 2 different people.
Bank reconciliation
Compare cash at bank balance to the bank statement balance and make sure all differences can be accounted for.
Explain why the entries in the Bank Statement is opposite of that in the Cash in bank account.
In the cash at bank account, receipts of cash or cheques are recorded as debits because they are regarded as business assets. The bank records such deposits as credits in the Bank Statement to reflect them as liabilities because the funds belong to the business and not the bank.
Why is the ending balance of the CAB account and the BS not the same?
- Due to the different in timing of recording transaction by the business and the bank
a) The bank has recorded the transaction but the business has not recorded.
b) The business has recorded the transaction but the bank has not recorded.
2. Due to error in recording in cash at bank account or in bank statement.
What should the business do if the ending balance of the CAB account and the BS is not the same?
Business would need to prepare a bank reconciliation to account for the different in the ending balance of cash at bank and ending balance of bank statement.
What is the purpose of preparing a bank reconciliation statement?
To account for the difference between the ending balance of the cash at bank balance and the bank statement balance.
What are the steps to update Cash at bank account. (no need to memorise)
- Check if beginning balance of the CAB account and BS are the same. If diff, find the diff amt in BK stt and cancel the figure.
- Check if there is any error (additional information) given in question. Is yes, cancel both figures in CAB and BS, do correction at place where the error occurs.
- Compare Cash at Bank account with Bank Statement. Cancel similar circle not similar figure.
- Prepare updated Cash at Bank Account.
- Prepare Bank reconciliation statement.
What is the format of the bank reconciliation statement?
Bank Reconciliation Statement as at (date)…
$ $
Balance as per bank statement 100
Add: Deposits in transit
John 10
Ali 10 20
120
Less: Cheques not yet presented
Peter 15
Ahmad 15 30
Adjusted balance as per cash at bank 90
Definition of these bank’s terms (Don’t use these term in the cash at bank account)
a. direct deposit /debit credit / credit transfer
b. Direct payment
c. standing orders
d. bank charges
e. dishonoured cheque
a. Direct deposit / direct credit / credit transfer
- Money received directly by bank
b. Direct payment
- Payments made by bank
c. Standing orders
- Instructions to bank to make regular payments of a fixed amount at a fixed date
d. Bank charges
- Charges by the bank for services rendered
e. Dishonoured cheques
- Cheques that are rejecte .d by the bank.
What are the reasons for the cheque to be dishonored?
- Inconsistent information in the cheque.
- Information on cheque not competed
- Payer’s has not enough money in his bank account to pay the cheque.
- Post-dated cheque
- Cheque is expired.
What is the journal entries for dishonored cheque
i) No cash discount
ii) with cash discount (e.g 10%) given to creditor customer
i) Dr Trade receivable
Cr Cash at bank
ii) Dr Trade receivable 100%
Cr Cash at bank (dishonoured) 90%
Cr Discount allowed (withdrawn) 10%
Give example of transactions that cause the cash at bank account to be higher than the bank statement balance.
Deposit in transit
Interest on deposit
Direct deposit / credit transfer
Dividend
Give example of transactions that cause the cash at bank account to be lower than the bank statement balance.
Cheque not yet presented
Interest charge / bank charges
Dishonoured cheque
Direct payment/ standing order
Define deposits in transit
Business received cheque and banked in the cheque, and recorded it in cash at bank account. But bank has recorded it as deposit in the bank statement.
Define cheques not yet presented
Business issued a cheque and recorded in the cash at bank account but the bank, thus bank has not recorded as withdrawal in the bank statment.
Differentiate between the cash in hand and cash at bank accounts.
Cash in hand account refers to the amount of money kept in the office while cash at bank account refers to the amount of money kept in the business bank account.
