POA revision chapter 8 and 9

Question 1

Cash in hand

Answer 1

Physical cash kept by the business inside a cash register or safe

Question 2

Cash at bank

Answer 2

Cash deposited into the bank

Question 3

Bank overdraft

Answer 3

Business withdraws more than what it has deposited or received in the bank account up to the limit which the business and the bank have agreed upon

Question 4

Dishonoured cheques

Answer 4

After a business deposits cheque received from customers, the bank may inform the business that the cheque is rejected

Question 5

Reasons for why the cheque was rejected

Answer 5

Cheque has expired (beyond 6 months)
cheque is post dated date written on cheque is a future date)
inconsistent information on cheque ( no signature, diff amount)
Incomplete cheque
Insufficient money in bank/ bank account closed or frozen

Question 6

What happens when a cheque is dishonoured

Answer 6

The business will record a decrease in cash at bank, any cash discount given previously will be withdrawn

Question 7

Business recording dishonoured cheque

Answer 7

Dr. Trade receivables

Cr cash at bank

Question 8

Business withdraws cash discount given to credit customer due to dishonoured cheque

Answer 8

Dr trade receivable

Cr discount allowed

Question 9

Purpose of internal controls

Answer 9

Safeguard assets of the business
Ensure business transactions are recorded accurately
Comply with laws and regulations

Question 10

Internal controls can detect or deter the occurrence of fraud, however…

Answer 10

Employees may still collude and find way around internal controls

Question 11

A business should implement internal controls to reduce

Answer 11

Possibility of theft
Likelihood or error
To ensure that the cash is well protected and accurately reported otherwise errors, discrepancies, or irregularities may not be detected on time and cash may be misappropriated

Question 12

Segregation of duties

Answer 12

Separate the cash handling and cash recording duties among different employees ( receiving and depositing, authorise invoices, write and authorise cheques)

Question 13

Custody of cash

Answer 13

Secure cash and cheques in a locked storage (limit access of cash and knowledge of passwords to staff)

Question 14

Authorisation

Answer 14

Obtain proper approvals for any payments from authorised personnel ( get 2 people to review and approve payments)

Question 15

Bank reconciliation purpose

Answer 15

Compare the business records with the bank’s records to identify items that cause differences in both records

Question 16

Businesses records deposits and withdrawals in their ______ account while the bank records business transactions in a _______ . This is sent to the business every _____

Answer 16

Cash at bank
Bank statement
Monthly

Question 17

Items in bank statement and not cashatbank account

Answer 17

Direct deposits, direct payment, dishonoured cheques

Question 18

Items in cash at bank account but not in bank statements

Answer 18

Deposits in transits, cheques not yet presented

Question 19

Purpose of bank reconciliations

Answer 19

To help explain the differences in the ending balance of businesses cash at bank account that of and the bank statement

Question 20

How to perform a bank reconciliation

Answer 20

1) check if beginning balances of cash at bank account and bank statement are the same
2) compare and identify errors and missing transactions in both records
3) update cash atbank account with missing transactions or errors in the bank statement on the last day of each month
4) prepare the bank statement to update the missing items found in the cash at bank account and errors made by the bank

Question 21

Bank reconciliation statement format

Answer 21

Balance as per bank statement
Add: deposits in transits
Less cheques not yet presented
Adjusted balance as per cash at bank account

Question 22

Inventory definition

Answer 22

Goods bought by businesses to sell to their customers

Question 23

Inventory is a resource that businesses use to carry out its activities and thus, classified as a _____

Answer 23

Current asset

Question 24

An item is recorded as an inventory when it is

Answer 24

What the business is trading in

Question 25

Why do businesses keep inventories

Answer 25

To prevent loss of sales when the business does not keep sufficient goods to meet the demands of the customers

Question 26

Why should businesses not overstock

Answer 26

If the business in unable to sell them, the business will incur higher storage costs and increase the risk of the goods becoming obsolete

Question 27

The business has to strike a balance and

Answer 27

Mantain inventory to meet customers demands by using the perpetual inventory system

Question 28

Cost of inventory purchased =

Answer 28

Purchase price of goods + all costs incurred to bring in and get them for ready sale

Question 29

Business purchased goods from supplier by cash/cheque

Answer 29

Dr inventory

Cr cash in hand/cash at bank

Question 30

Business return goods to credit supplier

Answer 30

Dr trade payable

Cr inventory

Question 31

Business returned goods to supplier and was refunded

Answer 31

Dr cash in hand/cash at bank

Cr inventory

Question 32

Business purchased goods from supplier on credit

Answer 32

Dr inventory

Cr trade payable

Question 33

Cost of sales refers to…

Answer 33

The cost incurred in buying the inventory that was sold where there is sale, the cost of the inventory sold must be recognised as cost of sales

Question 34

First in first out method is

Answer 34

Used for inventories in which goods that are purchased first are assumed to be sold first

Question 35

Impairment loss on inventory examples

Answer 35

selling price might be reduced to a level lower than cost like outdated or damage or downturn of economy

Question 36

According to the prudence theory,

Answer 36

Inventory must be valued at a lower cost and the net realisable value to ensure that inventory is not overstated