Unit 6 Journal
Question 1
Bank reconciliation can be used as an internal control for cash in many ways. One, bank reconciliation is a crucial accounting tool capable of reconciling the differences in the cash balance, as reflected in the accounts book and the bank statement. It shown that adjusting entries are made based on the variations in the cash balance, as indicated on the accounts book. This depicts that a bank reconciliation statement, BRS can be a vital tool when it comes to verification of a company’s bank balance. Meaning, through a BRS, management can ascertain differences between the cash balance in a company’s books and the cash balance, as reflected on the bank statement. Furthermore, as an internal control tool, bank reconciliation can aid in the identification of causes or reasons for differences in the balance as indicated by the bank statement and cash accessible with the company at any instance. An examination of the differences will aid a company in keeping track of receipts and payments, which will assist in uncovering possible fraud or errors.
Question 2
Given that bank reconciliation is required for adjustments and identification of errors and irregularities for the Cash account, the person receiving cash should not be the one that preparing bank reconciliation. This is because the person may manipulate the real and accounting balance for their own benefit. Also, given that a person receiving cash is involved in several disbursement functions and cash receipts, a bank reconciliation statement should be prepared by an accountant who does not have access to monetary funds to bring about the separation of duties. It is depicted the establishment of segregation of responsibilities is helpful in the prevention of fraud by requiring complicity for unauthorized actions.