internal control and cash maneg

Question 1

what is governance revision?

Answer 1

directing and controlling -> risks which prevent achieving business objectives

Question 2

Internal control?

Answer 2

Essential part of risk management.
Consists of all the processes used by management and staff to:
• Provide efficient and effective operations and;
• Comply with laws, regulations and internal policies.

Question 3

what are the two aspects of internal control?

Answer 3

administrative controls and accounting controls

Question 4

administrative control?

Answer 4

provide operational efficiency and adherence to policy and procedures.

Question 5

accounting controls?

Answer 5

are the methods and procedures used to protect assets and ensure that transactions are recorded appropriately.

Question 6

cycle of internal control:

Answer 6

• org approves authorisation
• org acts on distribution
• org double-checks verification

Question 7

principles of internal control are:

Answer 7

Establishment of responsibility (who in charge).
Segregation of duties:
• Related activities.
• Accountability for assets.
Documentation procedures.
Physical, mechanical and electronic controls. (security to maintain inventory)
Independent internal verification.

Question 8

limitations of internal control:

Answer 8

• cost versus benefits
• human imperfection
• business size (small vs large = affordability and resources)

Question 9

subsidiary ledgers are?

Answer 9

groups of accounts with a common characteristic.

Question 10

control account?

Answer 10

Details from subsidiary ledgers are summarised in the general ledger control account.

Question 11

Two common subsidiary ledgers are:

Answer 11

Accounts Receivable (customers) which collects transaction data of individual customers.
Accounts Payable (suppliers) which collects transaction data of individual creditors.

Question 12

benefits of control accounts and subsidiary ledgers?

Answer 12

• Show transactions in a single account providing up to date information.
• Free the general ledger of excessive details.
• Provide effective control.
• Enable segregation of duties

Question 13

special journals?

Answer 13

are used to record similar types of transactions.

Question 14

special journals benefits?

Answer 14

• Enable segregation of duties.

- Simplifies posting process to general ledger.

Question 15

sales journal used for:

Answer 15

all sales of inventory on account

Question 16

cash receipts journal used for:

Answer 16

all cash received (inc. cash sales)

Question 17

purchases journal used for:

Answer 17

all purchases of inventory on acct

Question 18

cash payment journal used for:

Answer 18

all cash paid (inc. cash purchase)

Question 19

general journal used for:

Answer 19

transactions that cannot be entered in a special journal, including correcting, adjusting and closing entries

Question 20

why is cash most desirable asset?

Answer 20

because it is readily convertible into any other asset

Question 21

cash consist of:

Answer 21

• cash on hand (notes and coins)
• cash at bank
• cheque accounts
• cash equivalents (bank overdrafts, deposits on money market, 90-day bank acceptance bills)

Question 22

what is petty cash fund?

Answer 22

cash fund used to pay relatively small amounts

Question 23

as cash is asset most subject to theft, what is important?

Answer 23

a good internal control system for handling cash and recording cash transactions is essential.

Question 24

internal control over cash receipts:

establishment of responsibility:

Answer 24

only designated personnel (cashiers) authorised to handle cash receipts

Question 25

internal control over cash receipts: | segregation of duties

Answer 25

different individuals receive cash, record cash receipts and hold cash

Question 26

internal control over cash receipts: | documentation procedures

Answer 26

use remittance advice (mail receipts), cash registers tapes and deposit slips, or sequentially ordered electronic receipt numbers

Question 27

internal control over cash receipts: | Physical, mechanical and electronic controls

Answer 27

store cash in safes and bank vaults; limit access to storage areas; bank cash frequently; use cash registers or have customers use direct deposits to the bank account or electronic funds transfer

Question 28

internal control over cash receipts: | independent internal verification

Answer 28

supervisors count cash receipts daily; banking clerk compares total receipts with bank deposits daily. compare accounting records with bank records on a regular basis (bank reconciliation)

Question 29

internal control over cash PAYMENT: | Establishment of responsibility

Answer 29

only designated personnel (e.g. finance manager) are authorised to sign cheques. Cheques should be signed by two authorised signatories

Question 30

internal control over cash PAYMENT: | segregation of duties

Answer 30

different individuals approve and make payments; cheque signers do not record payments; limit knowledge of PIN for EFT (electronic fund transfer)

Question 31

internal control over cash PAYMENT: | docu procedures

Answer 31

use prenumbered cheques and account for them in sequence; each cheque must have approved invoice; stamp invoices as paid

Question 32

internal control over cash PAYMENT: | physical, mechanical and electronic controls

Answer 32

store bank cheques in safe with limited access; print cheque amounts by machine in indelible ink; limit access using passwords and PINS

Question 33

internal control over cash PAYMENT: | indepe internal verification

Answer 33

compare cheques with invoices; reconcile bank account monthly

Question 34

The use of a bank contributes significantly to good internal control over cash by:

Answer 34

• Minimising the amount of cash that must be kept on hand. • Providing a double record of all bank transactions: - one by the business - one by the bank. • Helping a company safeguard its cash by using a bank as a depository and clearinghouse for cheques received and written.

Question 35

Cash at Bank account balance rarely doesn't what with balance as per bank statement.

Answer 35

Cash at Bank account balance rarely agrees with balance as per bank statement.

Question 36

how come cash at bank acct rarely agrees with balance as per bank statement?

Answer 36

1. Timing differences: occur when the parties record the same transaction in different periods: Unpresented cheque Outstanding deposits 2. Errors by either party in recording transactions.

Question 37

two timing difference types:

Answer 37

Unpresented cheque – lag between when the cheque is written and dated and the date it is paid by the bank. Outstanding deposits – lag between when receipts are recorded by the business and when recorded by the bank.

Question 38

what are the basic principles of cash managements?

Answer 38

1. increase speed of collection of receivables 2. keep inventory low 3. don't pay earlier than necessary 4. plan timing of major expenditures 5. invest idle cash.

Question 39

what is a dishonoured cheque?

Answer 39

occurs when bank on which cheque shown is drawn refuses to pay cheque, as it has been cancelled or balance of acct on which it is drawn is less than amt of cheque

Question 40

dishonoured cheque - how treated in bank reconciliation?

Answer 40

DC reduces balance of bank acct reported on bank statement. DC should be recorded in Cash at Bank acct, not bank reconciliation statement.

Question 41

dishonoured cheque - does it require adjusting entry in business records?

Answer 41

DC appears in cash receipts as a reduction. adjusting entry in company's ledger acct is DEBIT to AR and CR to Cash adjusted bank balance should equal balance of Cash of Bank acct.