Chapter 8 - cash and bank rec Flashcards
What are the reasons for dishonoured cheques/ why cheques are rejected by banks
-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
Journal entries for dishonoured cheque
=returned of the cheque
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)
- Journal entries for dishonoured cheque
=withdrew back the discount
Dr Trade receivables (+ to TR to restore back the original amount owed)
Cr Discount allowed (deduct the discount that was previously allowed)
Purpose of internal control
1) Safeguard assets of the business
2) Comply with laws and regulations
Why internal controls over cash?
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.
What are the internal controls that should be implemented
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
Why do business prepare bank reconciliation
To explain the differences in the ending balance of the business’s cash at bank account and that of bank statement
Name one reason for the difference between the ending balance of cash at bank account and bank statement
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.