Essential Book Keeping - Qp6

Properly reconciling the amounts involved when dealing with cash is important to ensure accuracy and prevent discrepancies. This process involves comparing the cash transactions recorded in the books with the actual cash on hand, bank statements, and other relevant documents. By reconciling, any errors or discrepancies can be identified and corrected promptly, ensuring the accuracy of financial records and preventing fraud or mismanagement of funds.

A petty cash book is indeed used to record small cash transactions and expenses. It helps in keeping track of how the cash is being spent and provides analysis of the expenses. By maintaining a petty cash book, organizations can ensure proper documentation and accountability for small cash transactions.

The statement is true because petty cash book transactions need to be summarized and transferred to the accounts periodically. This helps in maintaining accurate records and ensuring that all expenses are properly accounted for. By summarizing the transactions and transferring them to the accounts, the company can track and reconcile the petty cash expenses with the overall financial records.

Direct debits are used by most people to pay household bills and other expenses. Unlike standing orders or credit transfers, direct debits allow the payee to automatically collect funds from the payer's account on a regular basis. This makes it a convenient and popular method for recurring payments such as utility bills, mortgage payments, and subscriptions. BACS and CHAPS are also payment systems, but they are not specifically designed for household bill payments like direct debits are.

The term "Refer to drawer" means that the company should contact the person who issued the cheque in order to resolve any issues or make necessary corrections. It implies that there might be a problem with the cheque, such as insufficient funds or incorrect information, and the company should seek clarification or a new cheque from the drawer.

The imprest system is a simple system that can be used to ensure a business has enough petty cash on hand to meet its needs. This system involves maintaining a fixed amount of cash in a separate account, which is replenished periodically to maintain the fixed amount. This helps in controlling and monitoring petty cash expenses, as well as ensuring that there is always enough cash available for small, day-to-day expenses.

Cash flow is indeed important to all businesses, but it does not necessarily mean that most businesses are willing to offer a discount for tardy payment. In fact, most businesses prefer to receive payments on time to maintain a healthy cash flow. Offering discounts for late payments can actually have a negative impact on cash flow and overall profitability. Therefore, the statement is false.

The statement is false because businesses, especially large ones, typically maintain the cash book as a separate ledger or account outside of the general journal. The cash book is a specialized accounting record that tracks all cash transactions, including receipts and payments. It provides a detailed record of cash inflows and outflows, making it easier to reconcile and monitor cash balances. Keeping the cash book separate allows for better organization and accuracy in financial reporting.

To reconcile your bank statement, you should first tick off the entries on the statement against the corresponding entries in your cash book to see if everything has cleared. This helps ensure that all transactions have been accounted for and match between the two records. Additionally, you should check regular payments like standing orders and direct debits to ensure they have been correctly recorded. Finally, the balance should equal the differences between your 'bank in' and 'bank out' columns of your analyzed cash book, adjusted for any brought forward amount. This helps calculate the accurate balance and identify any discrepancies.