chapter 8

Question 1

what is cash transaction?

Answer 1

payment is made at the same time or immediately during a cash sale or purchase.

Question 2

what is cash at bank?

Answer 2

cash deposited with the bank

Question 3

what is cash in hand?

Answer 3

physical cash kept by business

Question 4

what does dishonoured cheque mean?

Answer 4

cheque is dishonoured when bank rejects the cheque

Question 5

what are the reasons for dishonoured cheque?

Answer 5

1.cheque has expired- cheque was dated 6 moths ago and is no longer valid.
2.cheque is post-dated - cheque was written for future date and bank will only pay on or after that date.
3.information on the cheque is inconsistent - amount written in numbers does not match the amount in words.
4. information on cheque is not completed - there is no date, amount to be paid or signature
5. payer’s bank account is closed or frozen or does not have enough money.

Question 6

what are the purpose of internal controls?

Answer 6

1. safeguard assets of business
2. ensure business transactions are recorded accurately
3. comply with laws and regulations

Question 7

internal controls to safeguard cash have control over?

Answer 7

cash in hand, cash at bank, cash in transit, cash receipts , cash payment

Question 8

what are the internal controls over cash and examples of good practices?

Answer 8

1.custody of cash. secures cash and cheques in locked storage.
e.g. limit access of cash to authorised personnel and provide combinations, passwords or other access codes to authorised personnel only.
2.authorisation. obtain proper approvals for all payments from authorised personnel.
e.g. require at least 2 persons to review and approve all payments and require valid supporting documents for all payments.
3. segregation of duties. separates cash handling and cash recording duties among different employees so that no single person has full control over the entire cash process.
e.g. business can ensure different employees receive and deposit cash and write & authorise cheques.

4. bank reconciliation. compare business records with bank’s records to identify bank account and bank statement.

Question 9

what are the purposes of bank reconciliation

Answer 9

• Check the cash at bank balance of business against the bank’s record as shown on bank statement.
• Reconciliation of differences between business cash at bank balance and the balance in the bank statement.
• Differences are due to timing of the transactions recorded by the business and the bank, and errors in recording