Chpt 8 Flashcards
Define dishonoured cheque
A dishonoured cheque is a cheque that is rejected by the bank for a variety of reasons. It is also referred to as a bounce cheque.
Reasons for dishonoured cheque
Cheque has expired
Cheque is post-dated.
Information on cheque is not consistent
Information on the cheque is not complete
Purpose of internal control
Safeguard assets of business.
Ensure business transactions are recorded accurately and on a timely basis.
Ensure that the business complies with laws and regulations.
Why internal controls are needed to protect cash
As cash is highly portable, it has a high chance of getting stolen. A business should thus implement internal control procedures to safeguard its cash and to reduce the possibility of theft or the likelihood of error to ensure that cash is well-protected and accurately reported.
Types of internal control over cash
Segregation of duties
Custody of cash
Authorisation
Bank reconciliation
What is a bank statement
The bank statement is a document issued by the bank at the end of the month to businesses to inform them of the remaining balance in their bank account. It gives the details of the money withdrawn and the deposits made by the business.
Why do the business and bank reconciliation record the transactions in the business’s bank account differently
To the business, the money kept with the bank is treated as an asset as the money belongs to the business. As an asset, any increase in the money kept with the bank is debited and any decrease is credited in the cash at bank account.
What causes the differences between the balance in the business’s cash at bank account and the balance in the bank statement
Differences are due to the timing of the transactions recorded by the business and the bank, as well as errors made by the business or the bank.
Explain the term bank reconciliation
Bank reconciliation is the process of matching the balances recorded in the cash at bank account and the bank statement and to account for discrepancies found between them.
Purpose of preparing bank reconciliation
- Detect and reconcile the discrepancies between balances and transactions recorded in the cash at bank account and the bank statement.
- Identify any errors in the bank statement or cash at bank account as well as acts as deterrence against fraud.
- Enable the business to calculate the accurate bank balance after updating the cash at bank account.
Custody of cash
Secure cash and cheques in a locked storage.
Custody of cash
Secure cash and cheques in a locked storage.
