Accounting Chapter 5

Cash

Most liquid asset

Current Asset

Cash is a

Cash

What is the standard medium of exchange?

Cash

coin, currency, available funds on deposit at the bank, money orders are examples of

Cash Equivalents

Short-term, highly liquid investments

Cash Equivalents

Treasury bills, Commercial paper, and Money market funds are examples of

Bank Overdrafts

Company writes a check for more than the amount in its cash account

Current Liability

Bank overdrafts are reported as a ________

Fraud

Dishonest act by an employee that results in personal benefit to the

employee at a cost to the employer

Opportunity, Rationalization and Finacial Pressure

Three factors of fraud:

The Sarbanes-Oxley Act

Required to maintain a system of internal control

Corporate Executives and Board of Directors

________and _______must ensure that these controls are reliable and effective

Independent outside auditors

must attest to the adequacy of the internal control system

Public Company Accounting Oversight Board

(PCAOB)

SOX created the

Establishment of Responsibility

Control is most effective when only one person is responsible for a given

task

Establishment of Responsibility

Transfer of cash drawers is an example of

Segregation of Duties

Different individuals should be responsible for related activities

Documentation Procedures

Companies should use prenumbered documents, and all documents should be accounted for

Phsyical Controls

Safes/Vaults for cash; Time clocks; Alarms; Locked Warehouses are all examples of ______

Independent Internal Verifications

Records periodically verified by an employee who is independent

Human Resource Controls

Bond employees who handle

cash

Rotate employees’ duties and

require vacations.

Conduct background checks

Petty Cash Fund

Used to pay small amounts

EFT system

Disbursement systems that use wire, telephone, or

computers to transfer cash from one location to another.

Liability

Banks consider your account a _______

Income Statement Approach

Merely multiply the estimated uncollectible percentage (%) by the credit sales or total percentage (%) by the credit sales or total sales

Bad Debts Expense

Allowance for Doubtful Accounts

Under the income statement approach you

Debit _________

Credit ______________

balance sheet

The allowance method had no effect on the ________

Balance Sheet approach

The estimated uncollectible percentage (%) is multiplied by the ending multiplied by the ending Accounts Receivable account balance from the general ledger

Bad debt expense

Companies record credit losses as debits to

Opportunity

Most important factor in the fraud triangle

Safeguard

Internal controls are designed to _____ assets

Cash

The entry to replenish a petty cash fund includes a credit to

Establishing the fund

Entries are made to the Petty Cash account when

Collusion

When two or more people get together for the purpose of circumventing prescribed controls, ti is called

Bank Reconciling

matching a company's internal financial records (general ledger/cash book) with bank statement records to ensure they align,