Discuss the bank reconciliation statement
If a company is owed $100 000 by the bank, why would it appear as a DR in the company’s ledger
accounts and a CR on the bank statement?
10 Why do outstanding (unpresented) cheques occur at month-end?
11 How does a petty cash system act as an internal control?
12 ‘No system of internal control is perfect. There are always inherent limitations.’ Discuss.
13 What does the concept of ‘reasonable assurance’ mean with respect to an internal control system?
14 Why it is important to perform cost–benefit analysis when designing an internal control system?
15 Outline the importance of each of the following in an internal control system for cash:
a that all cash should be banked daily, intact
b the bank reconciliation statement
c the segregation of duties for the mail opener, the cashier, the general ledger-keeper and the receivable
ledger clerk
d the receivable ledger clerk rotates jobs with the cashier each six months.
16 A school friend who has joined a new company tells you that the company has many controls over cash. He
asks you to explain why the following controls exist.
a Mail opening is carried out by two individuals. They won’t allow the cashier or the accounts receivable
clerk to open the mail, although they have spare time during the morning.
b Mail opening is time-consuming because the company requires that all cheques be crossed ‘not
negotiable’ and recorded on a listing of all cheques received.
c Because the cashier also has free time late in the afternoon, your friend suggested that the cashier
receive the bank-validated deposit slips, but the company insisted that the slips be returned to
someone else for checking.
d The company does have small expenses, so it would be useful to use some of the daily cash receipts to
pay them. Instead, they are forced to bank the receipts intact and set up a petty cash system to pay for
the small expenses.
e The cashier takes flexitime every Wednesday afternoon, as he likes to attend the local race meeting. He
asked management about not banking on Wednesday, keeping the Wednesday receipts in the safe,
then combining them with Thursday’s receipts, but the company would not give permission for this.
17 The bank reconciliation of XYZ Ltd reveals a significant bank error in XYZ’s favour that will probably go
undetected. As the accountant, you contact the general manager, who suggests that the bank has
probably made errors in its favour in the past and that the bank should not be informed of its error. What
should you do?
18 With respect to the internal control over cash, provide an example of each of the following:
a independent checks and reviews
b approval of transactions
c matching documents
d prenumbering and sequence checking
e reconciliation to outside information
f access restrictions.
19 Discuss the following statements:
a Internal control is the responsibility of the accountants in an organisation.
b A properly designed system of internal control over cash should prevent employee theft of cash.
20 Discuss the relationship between the corporate manager’s responsibility for internal control and his or her
responsibility to earn profit for the shareholder
