Chapter 8 - cash and bank rec Flashcards

1
Q

What are the reasons for dishonoured cheques/ why cheques are rejected by banks

A

-Cheque expired
-Cheque post-dated
-Amount written on cheque does not match amount written in words
-Payer’s bank account does not have enough money

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2
Q

Journal entries for dishonoured cheque
=returned of the cheque

A

Dr Trade receivables (+ to TR because credit customer still owe money)
Cr Cash at bank (minus fr cab because Biz did not receive the money at all)

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3
Q
  1. Journal entries for dishonoured cheque
    =withdrew back the discount
A

Dr Trade receivables (+ to TR to restore back the original amount owed)
Cr Discount allowed (deduct the discount that was previously allowed)

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4
Q

Purpose of internal control

A

1) Safeguard assets of the business
2) Comply with laws and regulations

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5
Q

Why internal controls over cash?

A

Cash is highly portable, high chance of getting stolen, so internal control reduce the possibility of theft to ensure cash is well-protected and accurately recorded.

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6
Q

What are the internal controls that should be implemented

A

1) Segregation of duties - Separate cash handling and cash recording dutiesv among different employees so no single person has control over the entire cash process.
2) Custody of cash - Secure cash and cheques in a locked storage and limit access of cash to authoised personnel
3) Authorisation - obtain properly approval for all payments from authorised personnel

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7
Q

Why do business prepare bank reconciliation

A

To explain the differences in the ending balance of the business’s cash at bank account and that of bank statement

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8
Q

Name one reason for the difference between the ending balance of cash at bank account and bank statement

A

One reason is due to timing differences in recording. Eg, business received a cheque on 29 June, recorded in the cash at bank account on 29 June but deposited the cheque on 1 July, hence the bank recorded this deposit in the July’s bank statement.

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