Special Journals, Internal Control & Bank Reconciliation Statements

Question 1

What are the 4 types of special journals?

Answer 1

Credit purchases of inventory (inventory purchases made on account) = Purchases journal
Credit sales of inventory (sales of inventory made on account) = Sales journal
Receipts (any transaction with debit cash) = Cash receipts journal
Cheques (any transaction with a credit cash) = Cash payments journal

Question 2

What are the four rules of special journals?

Answer 2

Anything to do with Accounts Receivable and Accounts Payable
- POST IMMEDIATELY TO THE SUBSIDIARY LEDGER.
Anything with a column and a total (except other)
- POST AT END OF PERIOD TO THE GENERAL LEDGER ACCOUNT
Anything in the “OTHER” column
- POST IMMEDIATELY TO THE GENERAL LEDGER ACCOUNT
Anything in the general journal
- POST IMMEDIATELY

Question 3

Accounting information must be reliable. What are the characteristics of internal control?

Answer 3

Establishment of responsibility
Segregation of duties
Documentation procedures
Physical, mechanical and electronic controls
Independent internal verification

Question 4

What are the limitations of internal control?

Answer 4

• Controls must be cost effective
• Most controls are set up for routine transactions
  
  • Not usually set up for rare transactions
• Human error
• Collusion
• Management override
• Become out of date as the business changes

Question 5

What is a dishonoured cheque?

Answer 5

A cheque which has been ‘bounced’, i.e. the customer’s bank has not honoured the cheque and therefore returned to the depositor’s bank

Question 6

What is an unpresented cheque?

Answer 6

A cheque that has been drawn by the payer but not yet paid by the bank

Question 7

What is an outstanding deposit?

Answer 7

The opposite of an unpresented cheque, a deposit that is yet to appear on the bank’s records.

Question 8

What are the steps in doing a bank rec?

Answer 8

1. Gather the following data
   
   • The previous bank reconciliation
   • Cash receipts and payments records since that date
   • The bank statement(s) since the previous reconciliation
2. Match items in the bank statement(s) with items in the previous bank reconciliation or cash records and journals (i.e. deposits made and cheques drawn).
3. For each item matched, give them a tick in both the cash records and on the bank statement
4. Enter any unmatched items in the bank statement into the appropriate cash journal and then tick both entries.
   
   • Exception is bank errors
5. Update / post to the ledger
6. Untucked items in cash journals (or ledger) and the previous bank reconciliation statement represent items the business has recorded but the bank has not
   
   • Examples include unpresented cheques, receipts not yet deposited
7. These are recorded in the new bank reconciliation
8. If it balances, do a little happy dance.