CHAPTER 8.2 internal controls

Question 1

state the purpose of internal controls

Answer 1

1) to safeguard the business assets
2)comply with the regulations and laws
3) ensure that business transactions are recorded accurately

Question 2

state the differences between cash at bank account and bank statement

Answer 2

1) timing differences
2) errors

Question 3

state what happens when there’s a timing difference in bank statement and cash at bank account

Answer 3

1) items recorded by the bank but not by the business yet
2) items are recorded by the business but not by the bank yet

Question 4

state what happens when there’s a error in bank statement and cash at bank account

Answer 4

errors
1) error by bank in recording bank statements
2) error in recording in the cash at bank account by business

Question 5

state why internal controls are important

Answer 5

1)as cash in highly portable there is a high chance of it getting stolen
2)to reduce errors in cash and it is well-protected and accurately reported

Question 6

state the 4 types of internal controls

Answer 6

1) bank reconciliation
2) authorisation
3) segregation
4) custody of cash

Question 7

explain bank reconciliation

Answer 7

compare the business records and the bank records to identify items that cause any difference between the two

Question 8

explain segregation of duties

Answer 8

segregate cash handling duties and cash account recording duties between employees

Question 9

explain authorisation

Answer 9

1) authorisation with required calid supporting documents for all payments
2)proper approval from authorised personnel for payments at least 2 persons to review and approve all payments

Question 10

explain custody of cash

Answer 10

1) secure cash and cheques in a locked storge
2) limit access to authorised personnel
3) provide, combinations, passwords to authorised perosonnel only
4) deposit cash daily into the bank to minimise the amount of cash kept overnight at the business location

Question 11

state the 4 reasons of bank reconciliation

Answer 11

1) act as deterrence against fraud
2) to identify any errors in the cash at bank account or bank statement
3) calculate the accurate bank balance after uploading the cash at bank account
4) find out the differences between the cash at bank account and the bank statement balance

Question 12

effect of profit for the period

Answer 12

1) any new income will increase the profit for the period
2) any new expense will decrease the profit for the period