Chapter 8 - Notes related to cash Flashcards
State two purposes of preparing a bank reconciliation statement.
1 The business would be able to find out the items that caused the difference between its cash at bank account balance and the bank statement balance.
2 The business would be able to calculate the accurate bank balance after updating its cash at bank account.
What is a dishonoured cheque?
A dishonoured cheque is a cheque that is rejected payment by the bank.
State three reasons for a cheque to be dishonoured.
1 The cheque has expired after six months from date of issued.
2 The cheque is post-dated. It is written for a future date and the bank will only pay
on or after that date.
3 The information on the cheque is incomplete. There is no date, amount to paid and no signature.
4. The person who issued the cheque does not have sufficient fund in his bank account.
State four differences between trade discount and cash discount.
1 Trade discount is offered by the business to its credit customers to encourage
them to buy in large quantities whereas cash discount is to encourage them to
settle their debts early. Trade discount encourage customer loyalty and their patronage.
2 Trade discount is a deduction off the list price of goods whereas cash discount is
a reduction in the invoiced amount.
3 Trade discount arises at sale of goods or purchase of goods whereas cash
discount arises upon receipt or payment of amount owed.
4 Trade discount is not recorded as only the invoice price is recorded whereas cash discount is recorded in the ledger as discount allowed and discount received.
State examples of internal control.
Segregation of duties so that no single person has control over the entire cash process, custody of cash so that cash and cheque are properly secured in a locked storage, proper authorization before payment, bank reconciliation to detect errors..
State purposes of internal control
Safeguard assets,
Ensure business transactions are recorded accurately,
Comply with law and order.
