SECTION 7: Control systems

• What is the purpose of the Bank Reconciliation Statement?

  To ensure accuracy of bank transactions
• What happens when a customer's account is overdrawn?

  The customer owes money to the bank
• Why is a customer's account considered a liability account from the bank's perspective?

  Funds belong to the customer, not the bank
• What is the process of bank reconciliation?

  • Ensures cash book and bank statement alignment
  • Identifies errors in transactions
  • Updates cash book with bank transactions

  
• What is one benefit of the Bank Reconciliation Statement?

  Reduces fraudulent activity in the business
• What is a standing order?

  Automatic payment of a fixed amount
• What is a direct deposit?

  Amounts deposited directly into the account
• What is a credit transfer?

  Automatic transfer of funds into an account
• What are bank charges?

  Payments deducted for operating the account
• What are unpresented cheques?

  Cheques not yet presented for payment
• What is a bank lodgment?

  Amounts deposited not yet cleared by the bank
• What is an undeposited cheque?


  Cheques received but not yet deposited
• What does "not sufficient funds" mean in relation to a cheque?

  Cheque returned due to insufficient funds
• What is another term for a dishonoured cheque?

  Bounced cheque
• What are key terms related to bank reconciliation?

  • Standing order
  • Direct deposit
  • Credit transfer
  • Bank charges
  • Unpresented cheques
  • Bank lodgment
  • Undeposited cheque
  • Not sufficient funds
• What is essential for accounting information to be useful?

  It must be accurate
• What happens if there are errors in accounting records?

  Users lose confidence and may make poor decisions
• Name one technique developed to ensure accuracy in accounting information.

  Trial balance
• What is the purpose of a trial balance?

  To check if debit entries equal credit entries
• What is a limitation of the trial balance?

  Errors may not be revealed
• What must be done to correct errors in the trial balance?

  A journal entry must be made
• What is an error of commission?

  Correct amount recorded in the wrong account
• How would you correct an error of commission?

  Cancel the error and enter the correct transaction
• What is an error of principle?

  Entry made in the wrong type of account
• How do you correct an error of principle?

  Cancel the error and enter the correct transaction
• What is an error of omission?

  No record made of the transaction
• How do you correct an error of omission?

  Enter the transaction
• What is an error of original entry?

  Figure misread from the original book
• How do you correct an error of original entry?

  Enter the increased/decreased amounts in accounts
• What is an error of complete reversal?

  Wrong accounts debited and credited

  
• How do you correct an error of complete reversal?

  Cancel the error and enter the correct transaction
• What is an error of compensation?

  Two uncorrected errors cancel each other
• What occurs when the totals of a trial balance do not agree?

  It indicates an error affecting the trial balance
• How do you correct an error affecting the trial balance?

  Add the extra amount to a suspense account
• What must be done after setting up a suspense account?

  Go through each transaction to find mistakes
• What happens when all errors are identified in a suspense account?

  The suspense account is closed
• What was the miscast amount for discounts allowed?

  $500
• What was the correct amount for discounts allowed?

  $750
• How much was the payment of water charges recorded incorrectly?

  $250

  
• What was the correct amount for the payment of water charges?

  $500