Practice Questions
Practice Questions: Accounting for Internal Control
This practice set covers cash control, the Bank Reconciliation Statement and the Cash Budget for Chapter 3. Attempt each question on your own before checking the short answers.
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How to practise effectively
- Read each question and identify whether it is a theory or a calculation item; for theory, answer in full sentences using precise accounting terms.
- For the Bank Reconciliation Statement, always state your starting point (Cash Book balance or Bank Statement balance) and show whether each item is added or deducted.
- Distinguish items that require updating the Cash Book (bank charges, direct debits, credit transfers, dividends, standing orders) from timing differences (unpresented cheques, uncredited deposits).
- For the Cash Budget, arrange the figures in monthly columns; the closing balance of one month becomes the opening balance of the next.
Check your answers and format
- Compare the structure of your answer with the model answer, not just the final figure, so the ordering of items is correct.
- Make sure each Bank Reconciliation Statement ends exactly at the target balance (Bank Statement or updated Cash Book).
- For full accounts and fully formatted examples, refer to the worked-example sets rather than memorising large tables.
- Write item labels clearly so an examiner can follow your reasoning and calculations easily.
| Particulars | Jan (RM) | Feb (RM) | Mar (RM) |
|---|---|---|---|
| Opening balance | 5,000 | 7,500 | 14,000 |
| Total receipts | 12,000 | 17,000 | 15,000 |
| Cash available | 17,000 | 24,500 | 29,000 |
| Total payments | 9,500 | 10,500 | 11,000 |
| Closing balance | 7,500 | 14,000 | 18,000 |
February receipts include a capital injection of RM3,000; monthly payments are purchases + wages RM2,000 + rent RM1,500.
Practice Questions
Question 1
Question 1 (Cash Control): Pak Man's Grocery Store makes many cash sales every day. Explain two purposes of cash control and suggest three suitable methods of cash control for this business.
Answer
Purposes of cash control:
1. To prevent embezzlement, theft and misuse of cash.
2. To ensure cash records are accurate and there is enough cash for daily operations.
Methods of cash control (any three):
1. Bank all cash collections every day.
2. Segregate duties: the person receiving cash is not the one recording it.
3. Make payments above a set amount by cheque or bank transfer rather than cash.
4. Keep cash in a safe and review bank statements regularly.
Question 2
Question 2 (Bank Reconciliation): Explain four reasons why the bank balance in the Cash Book differs from the balance on the Bank Statement on the same date.
Answer
1. Unpresented cheques: cheques issued but not yet cashed by the payee, so not yet deducted by the bank.
2. Uncredited deposits: money or cheques paid in but not yet recorded by the bank.
3. Items only in the Bank Statement: bank charges, interest, direct debits, standing orders, credit transfers, dividends received directly, and dishonoured cheques.
4. Errors: mistakes made in the Cash Book or by the bank.
Items (1) and (2) are timing differences; item (3) requires updating the Cash Book.
Question 3
Question 3 (Update the Cash Book): On 31 May 2024, the bank column of Maju Jaya Enterprise's Cash Book showed a debit balance of RM3,500. The following was found:
(i) Bank charges RM50 not yet recorded.
(ii) Dividend RM200 received directly by the bank.
(iii) Insurance standing order RM150 paid by the bank, not yet recorded.
(iv) Deposit RM800 not yet credited by the bank.
(v) Cheque issued RM600 not yet presented.
Update the Cash Book and prepare the Bank Reconciliation Statement.
Answer
Updated Cash Book:
Balance b/d (debit) 3,500
+ Dividend 200
– Bank charges 50
– Insurance standing order 150
= Updated balance 3,500
Bank Reconciliation Statement as at 31 May 2024:
Balance as per Cash Book (updated) 3,500
Add: Unpresented cheque 600
= 4,100
Less: Uncredited deposit 800
Balance as per Bank Statement = 3,300
Question 4
Question 4 (Without updating the Cash Book): Seri Indah Enterprise's Cash Book showed a debit balance of RM2,000 on 31 December 2024 (before adjustment). Information:
(i) Bank charges RM80.
(ii) Direct debit for utility bill RM320.
(iii) Credit transfer from a debtor RM500.
(iv) Unpresented cheques RM700.
(v) Uncredited deposit RM400.
Prepare the Bank Reconciliation Statement without updating the Cash Book.
Answer
Bank Reconciliation Statement as at 31 December 2024 (without updating the Cash Book):
Balance as per Cash Book 2,000
Add:
Credit transfer (debtor) 500
Unpresented cheques 700
= 3,200
Less:
Bank charges 80
Direct debit (utility bill) 320
Uncredited deposit 400
= 800
Balance as per Bank Statement = 3,200 – 800 = 2,400
Question 5
Question 5 (Cash Budget): Selera Kampung Restaurant expects the following for January–March 2025. Opening cash balance on 1 January is RM5,000.
Receipts: cash sales (Jan RM12,000, Feb RM14,000, Mar RM15,000); capital injection in Feb RM3,000.
Monthly payments: Wages RM2,000, Rent RM1,500. Purchases: Jan RM6,000, Feb RM7,000, Mar RM7,500.
Prepare the Cash Budget for the three months.
Answer
Cash Budget Jan–Mar 2025 (RM):
Jan | Feb | Mar
Opening balance: 5,000 | 7,500 | 14,000
Total receipts: 12,000 | 17,000 | 15,000
Cash available: 17,000 | 24,500 | 29,000
Total payments: 9,500 | 10,500 | 11,000
Closing balance: 7,500 | 14,000 | 18,000
Note: February receipts include the capital injection of RM3,000. Payments = purchases + wages RM2,000 + rent RM1,500 each month.
Question 6
Question 6 (Cash Budget concepts): Explain the meaning of the following terms and state one importance of the Cash Budget:
(i) Cash surplus
(ii) Cash deficit
(iii) Actual receipts exceeding expected receipts.
Answer
(i) Cash surplus: when total cash available exceeds total payments, giving a positive closing balance that can be invested or saved.
(ii) Cash deficit: when total payments exceed cash available, giving a negative closing balance; the business may need an overdraft or a loan.
(iii) Actual receipts exceeding expected receipts: actual cash collected is higher than the budgeted estimate, showing sales or collection performance better than expected.
Importance: The Cash Budget helps plan cash flow in advance so that shortages can be detected and action (such as arranging a loan) taken before problems occur.
Question 7
Question 7 (Identifying items): For each item below, state whether it is a Receipt or a Payment in the Cash Budget:
(i) Rent revenue received
(ii) Purchase of fixed asset in cash
(iii) Capital brought in by the owner
(iv) Payment of salaries
(v) Bank loan received
(vi) Cash drawings by the owner
Answer
Receipts: (i) Rent revenue received, (iii) Capital brought in by the owner, (v) Bank loan received.
Payments: (ii) Purchase of fixed asset in cash, (iv) Payment of salaries, (vi) Cash drawings by the owner.
Note: Non-cash items such as depreciation and bad debts are not included in the Cash Budget.
When must I update the Cash Book before preparing the Bank Reconciliation Statement?
How do I know whether an item is a receipt or a payment in the Cash Budget?
Other resources for this chapter
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