cash and bank reconciliation statement

Question 1

trade discount

Answer 1

a reduction of list price

Question 2

why is a trade discount given

Answer 2

• to encourage customers to buy in bulk
• to encourage customer patronage and loyalty

Question 3

cash discount

Answer 3

a reduction invoiced price

Question 4

why is a cash discount given

Answer 4

to encourage customers to pay early within a specified

Question 5

what is a difference of a cash discount and trade discount in terms of recording?

Answer 5

cash discounts are not recorded in ledger account, trade discounts are recorded in the ledger account as discount allowed or received.

Question 6

reasons/causes for dishonoured cheques

Answer 6

1. cheque expired (>6 months)
2. cheques is post-dated
3. insufficient funds in the payer’s bank account
4. information on the cheque is incomplete (i.e. missing signature or date)
5. information on the cheque is inconsistent (i.e. amount written in numbers does not match amount written in words

Question 7

when cheque is dishonoured,

Answer 7

cash at bank decreases

Question 8

purpose of internal controls

Answer 8

1. safeguard assets of business
2. ensure business transactions recorded accurately
3. to comply with laws and regulations

Question 9

internal control way 1: segregation of duties

Answer 9

separate cash handling and cash recording duties among different employees so that no single person has control over the entire cash process

Question 10

internal control way 2: custody of cash

Answer 10

secure cash and cheques in a locked storage and limit access of cash to authorised personnel

Question 11

internal control way 3: authorisation

Answer 11

proper approvals for all payments must be obtained from authorised personnel

Question 12

internal control way 4: bank reconciliation

Answer 12

compare the business’ records with the bank’s records to identify items that caused the differences between the ending balances of the cash at bank account and bank statement

Question 13

purpose of preparing bank reconciliation

Answer 13

• to check the cash at bank balance of business against balance on bank statement and account for the differences
• identify errors in cash at bank and bank statement
• update the cash at bank account
• help discover fraud

Question 14

explain the cause of differences between cash at bank account balance and bank statement balance

Answer 14

differences between cash at bank balance and bank statement balance are caused by:

timing differences in recording by business and bank

or

errors in recording by any of the two parties

Question 15

what are the types of differences between the cash at bank account balance and the bank statement balance

Answer 15

direct deposits
direct payments
dishonoured cheques
cheques not yet presented
deposits in transit
errors made by the business or the bank

Question 16

direct deposits

Answer 16

the customer deposits money with the bank directly or transfer funds directly into the business bank account

Question 17

direct payments

Answer 17

payments made directly by the bank on behalf of the business

Question 18

dishonoured cheques

Answer 18

cheques rejected by the bank

Question 19

cheques not yet presented

Answer 19

business had issued a cheque to its supplier but the supplier had not presented the cheque to the bank for payment yet

Question 20

deposits in transit

Answer 20

the business had deposited the cheque with the bank but the bank had not processed the cheque yet

Question 21

journal entries for received $A cheque from customer after giving a cash discount of $B

Answer 21

dr cash at bank/cash in hand A
dr discount allowed B
cr TR A+B

Question 22

journal entries for paid $A to credit supplier after receiving cash discount of $B

Answer 22

dr TP A+B
cr cash at bank/cash in hand A
cr discount received B

Question 23

journal entries for dishonored cheque

Answer 23

dr TR-name
cr cash at bank

Question 24

steps for bank reconciliation statement

Answer 24

1. check opening balance of c.a.b and bank statement, cancel item that caused difference (if any)
2. tick similar items
3. highlight/circle items
4. items not ticked in bank statement, record in c.a.b account on opposite sides starting with ending balance b/d
5. items not ticked in c.a.b., cr show as cheques not yet presented. dr show as deposits in transit