Question

1. What does cash include and why should it be controlled? 2. In the COMPANY Cash account give examples of INCREASES. 3. In the COMPANY Cash account give examples of DECREASES 4. Give examples of bank issued CREDIT Memos. 5. Give examples of bank issued DEBIT Memos. 6. Why is a bank CREDIT memo a Debit to the COMPANY Cash account? 7. Why is a bank DEBIT memo a Credit to the COMPANY Cash account? 8. You start the Bank Statement reconciliation of COMPANY CASH with the ENDING BALANCE of the cash account at the end of the month. How do you calculate what the ENDING BALANCE of cash is when you are given the BEGINNING BALANCE of cash for the month? 9. When the Bank Reconciliation has differing amounts of the COMPANY Cash account and the BANK STATEMENT what must you do? 10. What are the three (3) objectives of internal controls? 11. What is the objective of the Sarbanes-Oxley Act? Is it successful? Why or why not? 12. What is employee FRAUD? How much does employee fraud cost in dollars? 13. What are the five (5) Elements of Internal Control and define each one? 14. What are the limits of Internal Control? 15. Give me at least two (2) examples of special purpose cash accounts and what each is used for.

Answer 1

1. What does cash include and why should it be controlled?

cash includes both cash in hand as well as bank balance

2. In the COMPANY Cash account give examples of INCREASES.

receipt from customers for sale done i.e debtors, cash sales etc

4. Give examples of bank issued CREDIT Memos

when a customer directly deposits amount in our bank account or bank pays interest to us etc

5. Give examples of bank issued DEBIT Memos.

when bank charges for their services like cheque book issue charges etc

3. In the COMPANY Cash account give examples of DECREASES

payment for expenses like transportation charges paid, payment to creditors etc

6. Why is a bank CREDIT memo a Debit to the COMPANY Cash account?

bank credit means receipt for the company, so it is debited to cash account. eg interest received from bank.

7. Why is a bank DEBIT memo a Credit to the COMPANY Cash account?

it means there is a decrease in bank amount. for eg payment to suppliers, bank charges etc

8. You start the Bank Statement reconciliation of COMPANY CASH with the ENDING BALANCE of the cash account at the end of the month. How do you calculate what the ENDING BALANCE of cash is when you are given the BEGINNING BALANCE of cash for the month?

yes, opening balance is equal to closing balance.

we need to reverse the transaction for calculating the opening balance from the given closing balance.

9. When the Bank Reconciliation has differing amounts of the COMPANY Cash account and the BANK STATEMENT what must you do?

reconciliation needs to be done and also pass the rectification entry in cash book of the company if error found in cash book . also if there is error in bank statement, one needs to inform the bank and get it rectified.

10. What are the three (3) objectives of internal controls?

minimal fraud, maximum stakeholders trust and organisation's objective fullfillment

11. What is the objective of the Sarbanes-Oxley Act?

The SOX Act of 2002, also known as the Corporate Responsibility Act of 2002, mandated strict reforms to improve financial disclosures from corporations and prevent accounting fraud. due to its high cost, it became less attractive.

12. What is employee FRAUD?

Warning Signs of Potential Employee Fraud

1. Change In Behavior: If a once-cheerful employee becomes nervous, secretive, and defensive, it could be due to fear of being caught stealing. If you notice an unexplained personality shift, don’t level any accusations, but do double-check expenses.
2. Living Beyond Means: In the ACFE study, this was the most common red flag for asset misappropriation (46 percent of cases). If a lower-level employee suddenly shows up in designer clothes and a fancy new purse, that money had to come from somewhere. She could be borrowing money or running up a personal credit card, or she could be siphoning company money.
3. Financial Difficulties: If an employee is in bad financial shape, he may turn to theft to get some quick cash. If you know that the employee is having a tough time, be sympathetic, but watch your books.
4. Too Easy To Resist: Small businesses often don’t have enough employees to provide oversight by dividing duties. Is the same person who reviews petty cash receipts in charge of replenishing the supply? Does the person who buys office supplies also approve credit card expenses? Be extra careful when you know that you have control weaknesses.

How much does employee theft and fraud cost U.S. businesses each year? Estimates range from $20 billion to $50 billion, making it one of the most costly and widespread challenges faced in today's business world.

13. What are the five (5) Elements of Internal Control and define each one?

The COSO framework consists of three dimensions: coverage areas, activities, andobjectives. The five objectives are (1) control environment- elements which identify where control can be established, (2) risk assessment- elements which identify and assess the risk within control environment, (3) control activities- elements which implement control, (4) information and communication- elemets which inform and communicate user on timely basis to perform their duties, and (5) monitoringactivities- elements which monitor control activites.

14. What are the limits of Internal Control?

A system of controls does not provide absolute assurance that the control objectives of an organization will be met. Instead, there are several inherent limitations in any system that reduce the level of assurance. These inherent limitations are as follows:

• Collusion. Two or more people who are intended by a system of control to keep watch over each other could instead collude to circumvent the system.
• Human error. A person involved in a control system could simply make a mistake, perhaps forgetting to use a control step. Or, the person does not understand how a control system is to be used, or does not understand the instructions associated with the system.
• Management override. Someone on the management team who has the authority to do so could override any aspect of a control system for his personal advantage.
• Missing segregation of duties. A control system might have been designed with an insufficient segregation of duties, so that one person can interfere with its proper operation.

Consequently, it must be accepted that no system of internal controls is perfect. There is always a way in which it can fail or be circumvented.

15. Give me at least two (2) examples of special purpose cash accounts and what each is used for.

petty cash account for small small expenses of business

recuuring nature expense like transport expense