Professional Documents
Culture Documents
Unit 4
BBM 205/05
Business Accounting I
COURSE TEAM
Course Team Coordinator: Mr. Lim Peng Keat
Content Writers: Mr. Gabriel Gim Chien Wei and Ms. Ng Keat Hui
Instructional Designer: Ms. Ch’ng Lay Kee
Academic Members: Dr. Loo Choo Hong and Ms. Deehbanjli Lakshmayya
COURSE COORDINATOR
Mr. Lim Peng Keat
PRODUCTION
In-house Editor: Ms. Ch’ng Lay Kee
Graphic Designer: Ms. Valerie Ooi
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adult learners. It is funded by the Wawasan Education Foundation, a tax-exempt entity established
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First revision 2008, Second revision 2010, Third revision 2013, Fourth revision 2014
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Contents
Unit 4 Internal Control for Cash and
Correction of Errors
Unit overview 1
Unit objectives 1
Objectives 3
Introduction 3
Objectives 7
Introduction 7
Petty cash 7
Objectives 15
Introduction 15
Timing differences 15
Omission in recording 16
Errors in recording 19
Objectives 27
Introduction 27
Summary of Unit 4 41
Reference 51
UNIT 4 1
Internal control for cash and correction of errors
Unit Overview
In this unit, we shall learn on how to control the petty cash of a company, how to
minimise the risk of fraud in cash handling with the imprest system and how to
enhance the accuracy of recording.
We shall also learn how to compare the bank account and bank statement, find out
the cause for the discrepancies, make the necessary updates in the cash book and
prepare a bank reconciliation statement at a fixed interval.
Lastly, we shall learn how to rectify the errors in recording the transactions, eliminate
the suspense account and prepare the adjusted trial balance.
Unit Objectives
By the end of this unit, you should be able to:
2. Set up a petty cash account and describe how the imprest system works.
4. Solve the discrepancies in trial balance and make corrective entries to rectify
errors.
2 WAWASAN OPEN UNIVERSITY
BBM 205/05 Business Accounting I
UNIT 4 3
Internal control for cash and correction of errors
2. Explain and apply various internal control techniques to safeguard the cash
as an important asset to an organisation.
Introduction
As the business grows, a proper procedure is needed to control and safeguard the
company’s asset. Cash as one of the most important asset of the company, requires
an effective control procedure to monitor and handle to minimise the risk of loss
and unauthorised use.
The basic principles involved in the internal control for cash is:
The commonly used internal procedures for cash control are as follows:
1. Cash Receipts
c. At the end of the day, the total receipts will be checked by an independent
person.
d. The independent person will also ensure that all receipts are bank-in.
2. Cash Disbursements
Activity 4.1
2. Name two internal control procedures for cash receipt and cash
disbursement each and briefly explain how it helps to enhance
the control on the cash management.
Summary
Feedback
Activity 4.1
Introduction
Petty cash refers to the fund that a business keeps in the office to make payment
for minor expenses. Normally petty cash payments are supported by a bill or a
receipt. The person in-charge of petty cash will have to present all the receipts for
reimbursement.
Petty cash
A business entity usually keeps a small sum of cash in the office to meet the
operational requirements, which we call the petty cash. A staff will be assigned to
handle and record the movement of the cash. A separate book will be used to record
the petty cash transactions, which is the Petty Cash Book.
Assuming that the petty cash float is fixed at RM200 and reimbursement is made
on a weekly basis, the diagram below will show how the imprest system works:
RM
At the beginning of week 1 Received money from chief cashier 200
DR CR
Analysis of Payments
Receipts Date Particulars Voucher Total
No. RM Postage Travelling Stationery Office
Expenses
The petty cash book forms part of the General Ledger, thus the corresponding entries
will be reflected in the General Ledger, e.g., the corresponding entry for receipts
is on the credit side of the bank book if the reimbursement cheque is drawn from
the bank.
Example 1
2013 RM
Jan 1 Received RM200 from Chief Cashier to start up the petty cash float
5 Paid for stamps 60
9 Paid for transport charges 80
15 Paid for office stationery 30
23 Paid for office refreshment 20
UNIT 4 9
Internal control for cash and correction of errors
Postage A/C
Date Particulars Fol RM Date Particulars Fol RM
2013
Jan 31 Petty Cash 60
Transport A/C
Date Particulars Fol RM Date Particulars Fol RM
2013
Jan 31 Petty Cash 80
Stationery A/C
Date Particulars Fol RM Date Particulars Fol RM
2013
Jan 31 Petty Cash 30
Cheque payments to the petty cash float will be recorded on the credit side of the
Bank A/C.
10 WAWASAN OPEN UNIVERSITY
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Bank A/C
Date Particulars Fol RM Date Particulars Fol RM
2013
Jan 1 Petty Cash 200
Feb 1 Petty Cash 190
Activity 4.2
2013 RM
You are required to record the above transactions in the petty cash
book and balance the petty cash book with the calculation of the
reimbursement sum that made up the float.
Activity 4.3
2013 RM
May 1 Balance of petty cash in hand 85
1 Received the reimbursement cheque to restore ?
Imprest to RM300
6 Paid office refreshment 45
12 Paid office stationery 28
16 Paid for transport charges 15
18 Paid for postage 22
23 Paid for office flowers 80
26 Paid for stamps 9
1. Draw up the petty cash book with analysis columns for office
expenses, stationery, transport and postage and balance the petty
cash book at the end of the month.
Activity 4.4
2013 RM
Aug 1 Balance of petty cash in hand ?
1 Received the reimbursement cheque to restore
Imprest to RM350 325
3 Paid taxi fare 50
7 Paid office cleaning 40
11 Paid for utilities charges 80
15 Paid for ink cartridge 35
19 Paid for office refreshment 36
23 Paid for stamps 60
You are required to prepare the petty cash book with analysis
columns for travelling, office expenses, utilities, stationery and
postage.
Summary
The petty cash book is used to record petty cash transactions. The
analysis of payments is used to group the commonly spent items
so that posting to General Ledger is easier.
Feedback
Activity 4.2
Activity 4.3
2013
85 May 1 Balance b/d
215 1 Bank
6 Office 45 45
Refreshment
12 Stationery 28 28
16 Transport 15 15
18 Postage 22 22
23 Office 80 80
flowers
26 Stamps 9 9
199 125 28 15 31
300 300
Bank A/C
Date Particulars Fol RM Date Particulars Fol RM
2013
May 1 Petty Cash 215
Stationery A/C
Date Particulars Fol RM Date Particulars Fol RM
2013
May 31 Petty Cash 28
Transport A/C
Date Particulars Fol RM Date Particulars Fol RM
2013
May 31 Petty Cash 15
Postage A/C
Date Particulars Fol RM Date Particulars Fol RM
2013
May 31 Petty Cash 31
14 WAWASAN OPEN UNIVERSITY
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Activity 4.4
Analysis of Payments
Receipts Date Particulars Voucher Total
No. RM Travelling Office Utilities Stationery Postage
Expenses
2013
25 Aug 1 Balance b/d
325 Bank
3 Taxi fare 50 50
7 Office 40 40
Cleaning
11 Utilities 80 80
15 Ink cartridge 35 35
19 Refreshment 36 36
23 Stamps 60 60
301 50 76 80 35 60
31 Balance c/d 49
350 350
1. Explain the need to reconcile the cash book balance with the bank statement
balance.
Introduction
A business entity will normally operate a current account with the bank. At a fixed
interval, we shall receive a bank statement from the bank showing all the transactions
during the period in the record of the bank. When we receive the bank statement,
we will compare the transactions shown in the bank statement with the records in
our cash book to ensure the correctness and completeness of records.
More often than not, there will be discrepancies between the balances shown in
the bank statement and the cash book. This could be due to the following reasons:
1. Timing differences.
2. Omission in recording.
Timing differences
The bank and the company may not record the transactions at the same time in
their respective books, thus, causing the discrepancies in the balances.
The following circumstances are discrepancies arisen from the timing differences:
1. Unpresented cheques
Unpresented cheques refer to cheque already paid out but the recipients
have yet to present the cheques at the bank for payment.
These payments have been recorded in our cash book but since the bank
has yet to make the payments, it is not entered in the record of the bank.
16 WAWASAN OPEN UNIVERSITY
BBM 205/05 Business Accounting I
2. Uncredited cheques
Uncredited cheques refer to money received and recorded in the cash book,
however, due to the timing of bank-in, at the cut-off point, these transactions
have not been processed by the bank and thus will not appear in the bank
statement.
Omission in recording
At times, the bank will receive payment for the company, for example, a direct credit
by the customers, interest and dividend received directly. The company may not be
aware of these receipts and therefore not able to update the book.
There are also occasions whereby the bank will deduct their service charges directly
from the company’s account. As the company is not being notified, these charges
have not been deducted from the cash book.
Another example will be the dishonoured cheques. Dishonoured cheques are cheques
that cannot be processed due to either the cheques are not in order or there is
insufficient fund in the drawer’s account. However, the records in the cash book may
not be updated promptly as the company has yet to receive the notice from bank.
Example 2
Below is the cash book and bank statement of Dream Work Sdn Bhd for the month
of May 2013:
Bank Statement
2013 DR CR Balance
May 1 Balance b/d 3,750
1 Cheque 275 3,475
3 Deposit 370 3,845
8 Cheque 1,200 2,645
12 Deposit 750 3,395
14 Cheque 450 2,945
18 Deposit 1,000 3,945
20 Cheque 200 3,745
21 Bank charges 15 3,730
23 Deposit 800 4,530
28 Cheque 120 4,410
31 Fixed Deposit Interest 35 4,445
In contrast with the entries in the cash book, when we deposit money in the bank,
it is a liability to the bank as they have to make payment to us on demand. Thus a
deposit in the bank is a credit entry in the bank’s record. While we withdraw money
from the bank, the entry will be a debit in the bank’s record.
Upon receiving the bank statement, we will compare the records in the bank
statement with our cash book. From the illustration above, we can see that there is
a discrepancy in the closing balances of both books. Therefore, we have to look for
the causes of the discrepancy.
1. Payment received from Shaharil is not yet credited in the bank statement
(uncredited cheque).
4. Fixed deposit interest has not been taken up in the cash book.
After adjusting the cash book, only unpresented cheques and uncredited cheques
will be shown in the bank reconciliation statement.
UNIT 4 19
Internal control for cash and correction of errors
Errors in recording
Apart from the two reasons mentioned above, the discrepancies between the cash
book and bank statement may also due to errors in either cash book or bank
statement.
Example 3
Bank Statement
2013 Cheque No. DR CR Balance
Jul 1 Balance b/d 123451 5,260
1 Cheque 123456 480 4,780
3 Cheque 1,800 2,980
5 Deposit 2,500 5,480
8 Deposit 1,650 7,130
8 Cheque 123457 1,200 5,930
14 Deposit 350 6,280
16 Cheque 123459 238 6,042
20 Deposit 375 6,417
22 Cheque 123458 254 6,163
25 Deposit 1,300 7,463
28 Cheque 123460 450 7,013
31 Bank charges 15 6,998
After comparing the cash book and the bank statement, it was found that:
1. Payment to Siti Enterprise and Berjaya Venture are not processed yet.
2. Payment from Usaha Jaya has not been credited in the bank statement.
3. Payment for stationery was recorded wrongly in the cash book; the actual
payment should be RM254 instead of RM245.
4. Bank charges of RM15 have not yet been updated in the cash book.
Please note that the clearance of RM480 (cheque number123451) is actually the
unpresented cheque of previous month, thus no adjustment need to be made on this.
The understatement of RM9 for cheque number 123458 has to be rectified in the
cash book. The bank charges have also to be updated to calculate the actual balance
available before preparing the bank reconciliation statement.
Activity 4.5
Bank Statement
2013 DR CR Balance
Apr 1 Balance b/d 2,400
3 Deposit 1,500 3,500
7 Cheque 1,200 2,700
10 Deposit 2,750 5,450
18 Cheque 800 4,650
22 Deposit 680 5,330
21 Cheque 1,325 4,005
23 Deposit 800 4,805
28 Cheque 198 4,607
29 Bank charges 15 4,592
Activity 4.6
Tasty Catering
Cash Book (Bank column only)
Date Particulars RM Date Particulars RM
2013 2013
Sep 1 Balance b/d 7,630 Sep 2 Petty Cash 300
2 Sales 3,800 5 Purchases 1,300
8 Sales 1,500 9 Green Food 1,717
12 Johnny 2,350 12 Telephone 238
18 Yummy Food 3,670 14 MK Eggs 2,380
22 Mork Graden 1,925 18 Kok Vege 788
24 Sunny Corner 1,458 23 Lye Poultry 1,266
27 Sam 2,500 24 Soo's Store 2,525
29 Ewe 1,843 26 Rental 1,200
28 Annie Bakery 3,574
30 Balance c/d 11,388
26,676 26,676
Oct 1 Balance b/d 11,388
Bank Statement
2013 DR CR Balance
Sep 1 Balance b/d 7,630
2 Cheque 300 7,330
2 Deposit 3,800 11,130
8 Deposit 1,500 12,630
14 Cheque 238 12,392
16 Deposit 2,350 14,742
16 Cheque 1,717 13,025
16 Cheque 2,380 10,645
20 Deposit 3,670 14,315
21 Cheque 1,300 13,015
25 Cheque 788 12,227
26 Deposit 1,458 13,685
28 Cheque 1,200 12,485
30 Interest 66 12,551
30 Bank charges 10 12,541
Activity 4.7
Activity 4.8
Handyman Furniture
Cash Book (Bank column only)
Date Particulars RM Date Particulars Cheque RM
No.
2013 2013
Nov 1 Balance b/d 12,555 Nov 1 Ong Wood Supply 343155 8,480
5 Chun Design 7,850 3 Rental 343156 2,500
8 Sales 4,688 9 Choon Hardware 343157 1,784
10 Boon 3,569 15 Salary 343158 3,600
18 Kok Aun 7,788 18 Solid Wood 343159 15,889
21 Fadzil 5,259 24 James 343160 8,287
24 Jafry 9,056 26 Choon Hardware 343161 887
25 Mini 3,866 27 Purchases 343162 543
26 Sean 4,253 28 Utilities 343163 1,212
28 Judy 850 30 Balance c/d 16,552
59,734 59,734
Dec 1 Balance b/d 16,552
Bank Statement
2013 Cheque No. DR CR Balance
Nov 1 Balance b/d 18,432
3 Cheque 343148 1,327 17,105
5 Cheque 343156 2,500 14,605
8 Deposit 4,688 19,293
9 Deposit 7,850 27,143
9 Cheque 343152 2,550 24,593
9 Cheque 343155 8,480 16,113
12 Deposit 3,596 19,709
17 Cheque 343158 3,600 16,109
19 Stamp Duty 15 16,094
20 Deposit 7,788 23,882
22 Cheque 343159 15,889 7,993
24 Refer to drawer 7,788 205
26 Deposit 9,056 9,261
25 Cheque 343153 2,000 7,261
30 Cheque 343162 534 6,727
30 Interest 98 6,825
24 WAWASAN OPEN UNIVERSITY
BBM 205/05 Business Accounting I
You are required to update the cash book and prepare the bank
reconciliation statement as at 30 November 2013 for Handyman
Furniture.
Summary
Feedback
Activity 4.5
Activity 4.6
Tasty Catering
Bank Reconciliation Statement as at 30th September 2013
RM RM
Debit balance as per Cash Book 11,388
Add: Unpresented Cheque Lye Poultry 1,266
Soo’s Store 2,525
Annie Bakery 3,574
Interest Received 66 7,431
18,819
Less: Uncredited Cheque Mok Garden 1,925
Sam 2,500
Ewe 1,843
Bank Charges 10 6,278
Credit balance as per bank statement 12,541
Activity 4.7
Tasty Catering
Cash Book (Bank column only)
Date Particulars RM Date Particulars RM
2013 2013
Sep 30 Balance b/d 11,388 Sep 30 Bank Charges 10
Interest Received 66 Balance c/d 11,444
11,454 11,454
Oct 1 Balance b/d 11,444
Tasty Catering
Bank Reconciliation Statement as at 30th September 2013
RM RM
Credit balance as per Bank Statement 12,541
Add: Uncredited Cheques Mok Garden 1,925
Sam 2,500
Ewe 1,843 6,268
18,809
Less: Unpresented Cheque Lye Poultry 1,266
Soo’s Store 2,525
Annie Bakery 3,574 7,365
Debit balance as per Cash Book 11,444
26 WAWASAN OPEN UNIVERSITY
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Activity 4.8
Handyman Furniture
Cash Book (Bank column only)
Date Particulars RM Date Particulars RM
2013 2013
Nov 30 Balance b/d 16,552 Nov 30 Kok Aun 7,788
Boon (correction of 27 (Dishonoured 15
error) cheque) 8,883
Purchases 9 Bank Charges
(correction of error) Balance c/d
Interest Received 98
16,686 16,686
Dec 1 Balance b/d 8,883
Handyman Furniture
Bank Reconciliation Statement as at 30th November 2013
RM RM
Credit balance as per Bank Statement 6,825
Add: Uncredited Cheques Fadzil 5,259
Mini 3,866
Sean 4,253
Judy 850 14,228
21,053
Less: Unpresented Cheque Choon Hardware 1,784
James 8,287
Choon Hardware 887
Utilities 1,212 12,170
Debit balance as per Cash Book 8,883
UNIT 4 27
Internal control for cash and correction of errors
1. Explain the difference between errors revealed by a trial balance and errors
not revealed by a trial balance.
Introduction
The purpose of preparing a Trial Balance is to check the correctness of accounts in
the ledger. If there are errors, the total amount of debit and credit of the Trial Balance
will not agree. However, there are also errors that will not affect the agreement of
the Trial Balance. When errors are detected, they will be rectified by general journal.
Example 4
When preparing the Trial Balance, it was found that the credit total is more than the
debit total by RM120. Subsequent investigation revealed that Discount allowed to
Beng Huat has been credited to his account but omitted from the Discount Allowed
Account. This has caused the imbalance of the Trial Balance. A Suspense Account
is created to accommodate the difference.
Suspense A/C
Difference in books 120
28 WAWASAN OPEN UNIVERSITY
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General Journal
Date Particulars DR CR
Discount Allowed 120
Suspense Account 120
Being correction of error Discount Allowed
was omitted
Suspense A/C
Difference in books 120 Discount Allowed 120
Example 5
Meng Meng Co
Trial Balance as at 31 May 2013
RM RM
Capital 30,000
Equipment 8,500
Machinery 3,600
Sales 55,000
Purchases 36,850
Discount Allowed 125
Salaries 3,600
Debtors 15,300
Creditors 11,740
Rent 4,800
Cash 500
Bank 22,300
95,575 96,740
The above Trial Balance is not balanced. Subsequent investigation revealed that:
1. Cash Purchases of RM385 was recorded in the Cash Account but omitted
in the Purchases Account.
2. Cash sales of RM685 was correctly recorded in the Sales Account but
recorded as RM865 in the Cash Account.
Solution
Suspense A/C
RM RM
Difference in books 1,165 Purchases 385
Cash 180 Creditors 600
Rent 360
1,345 1,345
30 WAWASAN OPEN UNIVERSITY
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General Journal
Date Particulars DR CR
Purchases 385
Suspense Account 385
Being correction of error Purchases was
omitted
Suspense Account 180
Cash 180
Being correction of error Cash sales was
wrongly recorded
Creditors 600
Suspense Account 600
Being correction of error Payment from
creditors was omitted
Rent 360
Suspense Account 360
Being correction of error Rent payment
was omitted
Meng Meng Co
Trial Balance as at 31 May 2013
RM RM
Capital 30,000
Equipment 8,500
Machinery 3,600
Sales 55,000
Purchases 37,235
Discount Allowed 125
Salaries 3,600
Debtors 15,300
Creditors 11,140
Rent 5,160
Cash 320
Bank 22,300
96,140 96,140
UNIT 4 31
Internal control for cash and correction of errors
Activity 4.9
Activity 4.10
Self-test 4.1
Big Bean Co
Trial Balance as at 31 May 2013
RM RM
Capital 10,000
Motor Vehicle 3,500
Office Equipment 7,850
Sales 43,200
Purchases 28,350
Stationery 428
Salaries 5,600
Debtors 8,640
Creditors 10,468
Utilities 3,655
Cash 339
Bank 5,656
64,018 63,668
General Journal
Date Particulars DR CR
Cash 500
Sales 500
Being correction of error Cash sales was
omitted from the book
Sales A/C
RM RM
Cash 500
Cash A/C
RM RM
Sales 500
Example: Purchases of RM350 from Amy was posted to the account of Annie.
Correction: Reverse the entry from the wrong account and post to the correct
account.
Annie
RM RM
Amy 350 Purchases 350
correction error
Amy
RM RM
Amy 350 Purchases 350
correction
34 WAWASAN OPEN UNIVERSITY
BBM 205/05 Business Accounting I
General Journal
Date Particulars DR CR
Annie 350
Amy 500
Being correction of error Purchases wrongly
credited to Annie
Correction: Reverse the entry from the wrong account and post to the correct
account.
Stationery A/C
RM RM
Office Equipment 180
correction
General Journal
Date Particulars DR CR
Stationery 180
Office Equipment 180
Being correction of error Purchase of
stationery wrongly debited office equipment
Error of original entry Wrong amount was recorded in the book of prime entry
and subsequently posted to the ledger.
Example: Sales of RM758 to Ali was recorded as RM785 in the sales journal and
posted to the ledgers.
Correction: Reverse the differential sum from the affected accounts to fix the
situation.
UNIT 4 35
Internal control for cash and correction of errors
Sales A/C
RM RM
Ali 27 Ali error 785
correction
Ali A/C
RM RM
Sales 785 Sales 27
error correction
General Journal
Date Particulars DR CR
Sales 27
Ali 27
Being correction of error sales to Ali was
overstated by RM27
Example: RM550 cash purchases was correctly recorded in the cash account but
posted as RM500 to the purchases account. Interest received of RM150 was recorded
correctly in the bank account but posted as RM100 to the Interest Received Account.
Purchases A/C
RM RM
error
Cash 500
Interest Received 50
correction
General Journal
Date Particulars DR CR
Purchases 50
Interest Received 50
Being correction of error purchases and
interest received understated by RM50 each
Activity 4.11
Activity 4.12
You are required to prepare journal entries to rectify the above errors.
(Narrations are not required).
UNIT 4 37
Internal control for cash and correction of errors
Self-test 4.2
So Good Enterprise
Trial Balance as at 31 July 2013
RM RM
Capital 80,000
Motor Vehicle 33,000
Furniture & Fittings 27,250
Sales 74,630
Purchases 55,884
Rental 6,000
Salaries 10,800
Printing & Stationery 640
Repairs 2,235
Debtors 11,135
Creditors 10,250
Cash 1,792
Bank 13,883
162,619 164,880
2. RM161 paid for repairs was recorded in the cash book only.
Summary
There are two types of errors in the books, one is errors revealed
by the Trial Balance and the other one is errors not revealed by the
Trial Balance. Errors revealed by the Trial Balance will affect the
agreement of the Trial Balance. Usually this type of errors will affect
only one side of the double entry, correction has to be done via the
Suspense Account.
Errors not revealed by the Trial Balance are usually caused by errors
that involve both side of the double entry. The correction entries
do not involve the Suspense Account. The revised Trial Balance will
be drawn up after the correction of errors.
Feedback
Activity 4.9
General Journal
Date Particulars DR CR
Stationery Account 125
Suspense Account 125
Being correction of error Stationery was
omitted
Suspense Account 9
Sales 9
Being correction of error Cash sales was
wrongly recorded
Suspense Account 510
Cash 510
Being correction of error Payment for
utility by cash was debited to cash account
Suspense Account 25
Purchases 25
Being correction of error Purchases journal
was overcasted
UNIT 4 39
Internal control for cash and correction of errors
Activity 4.10
Suspense A/C
RM RM
Abu 884 Difference in books 102
Sales Returns 175 Jenny 447
Discount Received 255
Discount Allowed 255
1,059 1,059
General Journal
Date Particulars DR CR
Suspense Account 884
Abu 884
Being correction of error Payment received
from Abu was debited to his account
Suspense Account 175
Sales Returns 175
Being correction of error Sales returns
journal was overcast
Discount Received 255
Discount Allowed 255
Suspense Account 510
Being correction of error Discount allowed
was credited to discount received
Jenny 447
Suspense Account 447
Being correction of error Sales to Jenny
was not recorded in her account
Activity 4.11
General Journal
Date Particulars DR CR
Repairs 72
Cash 72
Wages 480
Stationery 480
John 750
Judy 750
Kitchen Equipment 1,500
Repairs 1,500
40 WAWASAN OPEN UNIVERSITY
BBM 205/05 Business Accounting I
Activity 4.12
General Journal
Date Particulars DR CR
Discount Allowed 240
Adrian 240
Khatijah 224
Kamala 224
Rental 100
Commission Received 100
Cash 458
Sales 458
Insurance 360
Utility 360
UNIT 4 41
Internal control for cash and correction of errors
Summary of Unit 4
Summary
In this unit, we have learnt about the need for internal control
in any organisation. Besides, we learnt how an effective internal
control system assists in improving the workflow and safeguarding
the company’s assets. We also learnt about the commonly used
internal control features for cash and its equivalent. The imprest
system is recommended for the petty cash float, where a systematic
reimbursement method is used to prevent fraud.
There are also errors not affecting the agreement of the trial balance.
These errors can be rectified by preparing adjusting journal entries.
After the adjustments, the adjusted trial balance has to be prepared
to show the updated balances.
42 WAWASAN OPEN UNIVERSITY
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UNIT 4 43
Internal control for cash and correction of errors
2013 RM
Jan 1 Balance of petty cash in hand 74
1 Received the reimbursement cheque to restore Imprest to RM350 ?
3 Paid for office flowers 36
7 Paid for A4 papers 87
13 Paid for taxi fare 45
18 Paid for toner 75
21 Paid for PosLaju 12
27 Paid for stamps 60
You are required to prepare the petty cash book with analysis columns for
travelling, office expenses, stationery and postage.
Bank Statement
2013 Cheque No DR CR Balance
Nov 1 Balance b/d 5,250
3 Deposit 3,600 8,850
7 Deposit 1,300 10,150
8 Cheque 331235 1,800 8,350
8 Cheque 331236 300 8,050
9 Refer to drawer 1,300 6,750
10 Deposit 1,180 7,930
18 Deposit 1,375 9,305
18 Cheque 331238 1,335 7,970
20 Cheque 331237 1,717 6,253
26 Deposit 1,474 7,727
28 Cheque 331239 458 7,269
44 WAWASAN OPEN UNIVERSITY
BBM 205/05 Business Accounting I
You are required to update the cash book and prepare the bank reconciliation
statement as at 30 June 2013 for Advance Sdn Bhd.
3. The Trial Balance for Perfect Vision Enterprise could not balance:
b. Cash payment of RM150 for stationery was completely omitted from the
books.
e. RM1,500 for upkeep of motor vehicle was debited to motor vehicle account.
a. The Suspense Account and the necessary journals to rectify the above errors.
(Narrations are not required).
c. The Suspense Account and the necessary journals to rectify the above errors.
(Narrations are not required).
Feedback
Self-test 4.1
Suspense A/C
RM RM
Sales 130 Difference in books 350
Cash 18 Bank 254
Utility 456
604 604
General Journal
Date Particulars DR CR
Suspense Account 130
Sales 130
Being correction of error Sales was omitted
Suspense Account 18
Cash 18
Being correction of error Cash purchases
was wrongly recorded
Bank 254
Suspense Account 254
Being correction of error Payment from
debtor was omitted
Suspense Account 456
Utility 456
Being correction of error Utility overstated
Big Bean Co
Trial Balance as at 31 October 2013
RM RM
Capital 10,000
Motor Vehicle 3,500
Office Equipment 7,850
Sales 43,330
Purchases 28,350
Stationery 428
Salaries 5,600
Debtors 8,640
Creditors 10,468
Utilities 3,199
Cash 321
Bank 5,910
63,798 63,798
46 WAWASAN OPEN UNIVERSITY
BBM 205/05 Business Accounting I
Sels-test 4.2
General Journal
Date Particulars DR CR
Cash 200
Sales 200
Repairs 161
Suspense Account 161
Purchases 1,404
Suspense Account 1,404
Suspense Account 96
Bank 96
Furniture 1,288
Repairs 1,288
Commission 792
Suspense Account 792
Suspense A/C
RM RM
Difference in books 2,261 Repairs 161
Bank 96 Purchases 1,404
Commission 792
2,357 2,357
So Good Enterprise
Trial Balance as at 31 July 2013
RM RM
Capital 80,000
Motor Vehicle 33,000
Furniture & Fittings 28,538
Sales 74,830
Purchases 57,288
Rental 6,000
Salaries 10,800
Printing & Stationery 640
Repairs 1,108
Debtors 11,135
Creditors 10,250
Cash 1,992
Bank 13,787
Commission 792
165,080 165,080
UNIT 4 47
Internal control for cash and correction of errors
Feedback
1.
Analysis of Payments
Receipts Date Particulars Voucher Total
No. RM Travelling Office Stationery Postage
Expenses
2013
74 Jan 1 Balance
276 1 Bank
3 Office 36 36
flowers
7 A4 Paper 87 87
13 Taxi fare 45 45
18 Toner 75 75
21 PosLaju 12 12
27 Stamps 60 60
325 45 36 162 72
31 Balance c/d 35
350 350
2.
3.
General Journal
Date Particulars DR CR
Suspense Account 550
Commission Received 550
Stationery 150
Cash 150
Suspense Account 376
Discount Received 188
Discount Allowed 188
Richard 3,903
Suspense Account 3,903
Upkeep of Motor Vehicle 1,500
Motor Vehicle 1,500
Suspense A/C
RM RM
Difference in books 2,977 3,903
Commission Received 550
Discount Received 188
Discount Allowed 188
3,903 3,903
UNIT 4 49
Internal control for cash and correction of errors
Reference
Li, B, Tan, S K, Goh, L C and Goh, L S (2003) Principles of Accounts, Singapore:
Times Media Private Limited.