Chapter 8 Cash Flashcards
Explain the term ‘dishonoured cheque’
-A dishonoured cheque is a cheque that is rejected by the bank for a variety of reasons. It is also referred to as a bounced cheque.
State the reason for dishonoured cheque
-Cheque has expired
-Cheque is post-dated
-Information on cheque is not consistent
-Information of the cheque is not completed
State the purposes of internal controls
-safeguard assets of the business
-ensure business transactions are recorded accurately and on a timely basis
-ensure that the business complies with law and regulations
Explain why internal controls are needed to protect cash
-As cash is highly portable, it has a high chance of getting stolen. A business should thus implement internal control procedures to safeguard its cash and to reduce the possibility of theft or the likelihood of error in order to ensure that cash is well-protected and accurately reported.
State the types of internal control over cash
-Segregation of duties
-Custody of cash
-Authorisation
-Bank reconciliation
What is a bank statement?
-The bank statement is a document issued by the bank at the end of the month to businesses to inform them of the remaining balance in their bank account. It gives the details of the money drawn out and deposits made by the business.
Debit and credit bank and business
To the business, the money kept with the bank is treated as an asset as the money belongs to the business. As an asset, any increase in the money kept with the bank is debited and any decrease is credited in the cash at bank account.
However, from the perspective of the bank, the money deposited in the bank by the business is treated as a liability because the bank has to return this money when the business withdraws it. Hence, on a bank statement, any deposit is recorded as a credit and any withdrawal as a debit. This is opposite of our cash at bank account.
Explain what causes the differences between the balance in the business’s cash at bank account and the balance in the bank statement.
Items recorded in the cash at bank account but not in the bank statement:
Cheque not yet presented
Deposits in transit
Items recorded in the bank statement but not in the cash at bank account
Direct deposits
Direct payment
Dishonoured cheque
Explain the term bank reconciliation
-Bank reconciliation is the process of matching the balances recorded in the cash at bank account
and the bank statement and to account for discrepancies found between them.
Explain the purpose of preparing bank reconciliation
-Detect and reconcile the discrepancies between balances and transactions recorded in the cash at bank account and bank statement
-Identify any errors in the bank statement or cash at bank account as well as acts as deterrence against fraud.
-Enable the business to calculate the accurate bank balance after updating the cash at bank account
