Unit 1, test 2

Question 1

What is internal control mechanisims?

Answer 1

The processes and strategies used to protect the firm’s assets from theft, damage and misuse

Question 2

What are the internal control mechanisms?

Answer 2

Physical safeguards
Preventative safeguards
Separation of duties
Rotation of duties
Careful hiring practices
Effective employee training

Question 3

Physical safeguards

Answer 3

These prevent unauthorized people from accessing particular assets (e.g use of safes and lock-boxes)

Question 4

Preventative safeguards

Answer 4

Involve dissuading misuse or theft (e.g alarms and security cameras)

Question 5

Seperation of duties

Answer 5

Involves ensuring no one employee has complete control over a particular type of asset

Question 6

Rotation of duties

Answer 6

Involves ensuring that tasks are not always performed by the same employee

Question 7

Careful hiring practices

Answer 7

Effective screening and assessment of potential employees

Question 8

Effective employee training

Answer 8

Ensure staff are skilled in the use and management of the assets they are required to use or supervise

Question 9

Transactions business knows but not bank

Answer 9

1) Deposits not yet credited - receipts recorded in cash receipts journal however not deposited into bank account and therefore do not appear on bank statement

2) Unpresented cheques - these have been written and recorded in cash payments journal however there person receiving the cheque has not ‘presented’ it at their bank for cashing

Question 10

Transactions bank knows but not business

Answer 10

1) Direct credits - cash deposited directly into the business’ bank account (e.g interest earned or an electronic funds transfer by a customer)

2) Direct debits - cash withdrawn directly from the business’ bank account (e.g bank fees and charges, regular payments such as loan repayments)

Question 11

Bank reconciliation process

Answer 11

1) Compare cash receipts - check the bank column in the cash receipts journal against the credit column in the bank statement
2) compare cash payments - check the bank column of the cash payments journal against the debit column in the bank statement
3) Update the cash recipes journal and cash payments journals
4) Prepare a Bank reconciliation statement