Question

please explain:

What are the principles of internal controls are?

What does bonding employees means and accomplishes?

What is the process of bank reconciliation?

What is fraudulent activity and its main factors?

How to prepare bank reconciliation?

Answer 1

Ans 1

The main internal control principles include:

Establish Responsibilities.

Maintain Records.

Insure Assets by Bonding Key Employees.

Segregate of Duties.

Mandatory Employee Rotation.

Split Related Party Responsibility.

Use Technological Controls.

Perform Regular Independent Reviews.

Ans 3

A bank reconciliation statement is a document that matches the cash balance on a company’s balance sheet to the corresponding amount on its bank statement. Reconciling the two accounts helps determine if accounting changes are needed. Bank reconciliations are completed at regular intervals to ensure that the company’s cash records are correct. They also help detect fraud and any cash manipulations.

Bank Reconcilion procedure:

On the bank statement, compare the company’s list of issued checks and deposits to the checks shown on the statement to identify uncleared checks and deposits in transit.

Using the cash balance shown on the bank statement, add back any deposits in transit.

Deduct any outstanding checks.

This will provide the adjusted bank cash balance.

Next, use the company’s ending cash balance, add any interest earned and notes receivable amount.

Deduct any bank service fees, penalties, and NSF checks. This will arrive at the adjusted company cash balance.

After reconciliation, the adjusted bank balance should match with the company’s ending adjusted cash balance

Ans 5

Steps in Preparation of Bank Reconciliation Statement

Check for Uncleared Dues

Step 1: First of all, compare the opening balances of both the bank column of the cash book as well as the bank statement. The two can be different in terms of uncleared dues like un-presented or un-credited cheques from the previous month.

Compare Debit and Credit Sides

Step 2: Start by comparing the credit side of the bank statement to the debit side of the bank statement. Also, compare the credit side of the cash book to the debit side of the cash book. The two must be equal in both documents. Tick the columns if you can’t find any error.

Check for Missed Entries

Step 3: Analyse entries in the bank column of the cash book as well as in checkbook. Look for records that have been missed to be posted in the bank column of the cash book. Make a separate list of all such items and list them in cash book.

Correct them

Step 4: Correct the errors present in the cash book, if any.

Revise the Entries

Step 5: Calculate the balance after revising the updated cash book’s bank column.

Make BRS Accordingly

Step 6: Prepare Bank Reconciliation Statement accordingly. Make sure to add the updated version of records.

Add Un-presented Cheques and Deduct Un-credited Cheques

Step 7: Banks are not aware of Un-presented cheques because the beneficiary doesn’t get the cheque. It is the case when the business firm forgets to deliver the signed cheque to the issued name.

This situation leads to the addition of the cheque amount in the bank statement.

On the other hand, cheques which beneficiary has not yet collected are called un-credited cheques. These must be deducted.

Make Final Changes

Step 8: Make all the final adjustments and check for bank errors in the bank statement and the firm’s errors in the cash book. During heavy transaction days, firms or banks may make mistakes in noting entries.

The process removes those errors. Although it consists of fine work, reconciliation becomes a helping hand at hard times (large transaction days).

Left-Hand Side Equal to the Right-Hand Side

Step 9: The results from both the documents i.e. bank statement and cash book must match with each other.