Chaper 8

Question 1

Difference between cash and credit transaction.

Answer 1

Cash transaction is settled immediately while credit transaction is settled at a later date.

Question 2

Reason for dishonoured cheque.

Answer 2

Cheque is expired.
Cheque is post-dated.
Information on cheque is not complete.

Question 3

Purpose of internal controls

Answer 3

To comply with laws and regulations
To ensure the business transactions are recorded accurately
To safeguard the business assets

Question 4

Examples of internal control

Answer 4

Segregation of duties
Authorisation
Custody of cash
Bank reconciliation

Question 5

Explain segregation of duties

Answer 5

To separate cash handling and cash recording duties among different employees so that no single person has control over the entire cash process.

Question 6

Explain Authorisation.

Answer 6

To secure cash and cheques in a locked area limiting access to authorised personnel only.

Question 7

Explain custody of cash.

Answer 7

To obtain proper approval for all payments from more than one authorised personnel.

Question 8

Explain bank reconciliation.

Answer 8

To compare the business’ records with the bank’s records to identify items that caused the differences between the ending balances in the business cash at bank account and the bank statement.