HOTS (KBAT) Worked Examples: Accounting for Internal Control

Example 1: Updating the Cash Book & Bank Reconciliation Statement

Question

Solution plan

Step 1: Update the Cash Book for items the bank has recorded but the trader has not. Debit (add): dividends RM450. Credit (deduct): bank charges RM120, standing order RM300, dishonoured cheque RM280.

Step 2: Adjusted balance = 3850 + 450 − 120 − 300 − 280 = RM3,600.

Step 3: Reconcile the adjusted balance to the Bank Statement using timing items only: add unpresented cheque RM620, deduct uncredited deposit RM900.

Answer

The adjusted Cash Book balance is RM3,600 (debit). The balance as per the Bank Statement is RM3,320.

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Example 2: Bank Reconciliation Without Updating the Cash Book

Question

Solution plan

Because the Cash Book has not been updated, all differences (timing items AND items not yet in the Cash Book) must appear in the statement. Start from the Cash Book balance RM3,620.

Add the rent collection RM500 (it raises the bank balance but is absent from the Cash Book) and the unpresented cheque RM540.

Deduct items that lower the balance: bank charges RM90, dishonoured cheque RM230, standing order RM400 and uncredited deposit RM760.

Answer

Starting from the Cash Book balance of RM3,620, the statement reconciles to the Bank Statement balance of RM3,180.

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Example 3: Bank Reconciliation with Error Correction

Question

Solution plan

Identify the effect of each error on the Cash Book:

• Receipt RM360 recorded as RM630 → over-debited by RM270 → credit (deduct) RM270 to correct.

• Payment RM150 recorded twice → over-credited by RM150 → debit (add) RM150 to correct.

• Direct credit from En. Zaidi RM540 → debit (add).

• Bank charges RM75 → credit (deduct).

Adjusted balance = 1750 + 540 + 150 − 75 − 270 = RM2,095.

Statement: add unpresented cheque RM480, deduct uncredited deposit RM610.

Answer

The adjusted Cash Book balance after corrections is RM2,095 (debit). The balance as per the Bank Statement is RM1,965.

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Example 4: Cash Budget & Interpreting Surplus/Deficit

Question

Solution plan

For each month: Total Receipts − Total Payments = Surplus/(Deficit). Closing cash = Opening balance + Surplus/(Deficit); the closing balance becomes the next month's opening balance.

July: 20,000 − 15,800 = +4,200 → closing 9,200.

August: 23,000 − 22,900 = +100 → closing 9,300 (tight due to equipment purchase RM6,000).

September: 26,000 − 19,450 = +6,550 → closing 15,850.

Answer

Every month shows a surplus: July RM4,200, August RM100 and September RM6,550. Closing cash balances are RM9,200, RM9,300 and RM15,850 respectively. Cash stays positive but becomes very tight in August because of the RM6,000 equipment purchase; Puan Noraini could defer or reschedule that capital outlay to reduce the risk of a cash shortfall.

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Example 5: Variance Analysis: Budgeted vs Actual

Question

Solution plan

Compute variance = actual − expected for each item. For receipts, a positive variance means actual receipts are higher than expected (favourable). For payments, a positive variance means actual payments are higher than expected (unfavourable for cash).

Total Receipts: 26,300 − 25,000 = +1,300.

Total Payments: 19,700 − 18,500 = +1,200.

Surplus: actual 6,600 vs expected 6,500, variance +100.

Answer

The actual surplus of RM6,600 is only RM100 above the expected RM6,500. Actual cash sales exceeded expectation by RM2,500 (favourable), but actual debtor collection was RM1,200 below expectation and actual purchases exceeded expectation by RM1,500. En. Yusof should tighten debt collection and control purchase costs, even though the overall surplus is close to target.

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Example 6: Overdraft Reconciliation & Evaluating Cash Control

Question

Solution plan

An overdraft is a credit balance in the Cash Book. Items that increase the overdraft are credited; those that reduce it are debited.

Credit (increase overdraft): balance b/d 1,200, bank charges 160, interest 90, standing order 250, dishonoured cheque 340 → total 2,040.

Debit (reduce overdraft): dividends 700. Balance c/d (debit) = 2,040 − 700 = 1,340 → overdraft balance b/d RM1,340.

Statement: start from (1,340), add unpresented cheque 900 (reduces the bank overdraft), deduct uncredited deposit 1,100 (increases the bank overdraft) → Bank Statement overdraft (1,540).

Answer

The adjusted Cash Book balance is an overdraft of RM1,340, and the balance as per the Bank Statement is an overdraft of RM1,540. The business's cash control is weak: bank charges, overdraft interest and standing orders are recorded late, so the true balance is unknown and the overdraft keeps rising. En. Kamal is advised to prepare a Bank Reconciliation Statement monthly, record standing orders immediately and segregate cash-handling duties to strengthen internal control.

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