Chapter 8 ( Cash And Bank Rec)

Question 1

What are the reasons for dishonoured cheques?
Why are cheques rejected by banks?

Answer 1

• 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

Question 2

Purpose of internal control

Answer 2

• Safeguard assets of the business
• Comply with laws and regulations

Question 3

Why internal controls over cash?

Answer 3

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

Question 4

What are the internal controls that should be implemented?

Answer 4

1) Segregation of duties - Separate cash handling and cash recording duties 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 authorised personnel

3) Authorisation - Obtain proper approval for all payments from authorised personnel

Question 5

Why do businesses prepare bank reconciliation?

Answer 5

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

Question 6

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

Answer 6

One reason is due to timing differences in the recording.

(E.g. business received a cheque on 29 June, recorded in the CAB account on 29 June but deposited the cheque on 1 July, hence the bank recorded this deposit in the July’s bank statement)