Question -
The financial year of Ho Trading Ltd ends on 31 December. On 31 December 2016, its cash book (bank account) showed a debit balance of $4,743, which was different from the balance as shown on the bank statement. An investigation of the records disclosed the following:
i. Cheques totalling 53,000 had been deposited at the bank and recorded in the cash book at 30 December 2016. However, the deposit was recorded by the bank on 2 January 2017.
ii. A debtor paid $2,000 directly into the bank account of Ho Trading Ltd but no entries had yet been made in the cash book.
iii. The cash book balance had been incorrectly brought down at I December 2016 as a credit balance of $1,200 instead of a debit balance of $2,100.
iv. The cash book included a cheque for $1,000 which was received from a customer in December 2016. The cheque was dated 4 January 2017 and was still held by the cashier on 31 December 2016.
v. The bank statement showed that the company had been debited with an amount of $100 by the bank by mistake.
vi. A cheque for $4,000 from a customer deposited on 27 December 2016 had been returned as there were insufficient funds in the drawer's account. A debit entry was found in the bank statement on 31 December 2016.
vii. Cheques issued amounting to $6,400 had not yet been presented to the bank for payment.
Required:
a. Prepare the cash book, showing all the necessary entries to calculate the correct cash book balance of Ho Trading Ltd as at 31 December 2016.
b. Using the corrected cash book balance calculated in (a) above, prepare a bank reconciliation statement for Ho Trading Ltd as at 31 December 2016.
c. Discuss two basic guidelines for an effective system of internal controls relating to cash.