Cash, Fraud, and Internal Control – Chapter 8

These flashcards cover key concepts from Chapter 8 on cash, fraud, and internal control, providing definitions and descriptions for essential terms.

Internal Control

An internal control system is used to monitor and control business activities, ensuring reliable accounting, protecting assets, and promoting efficient operations.

Sarbanes-Oxley Act (SOX)

A law requiring managers and auditors of public companies to document and certify their system of internal controls, with significant penalties for non-compliance.

Committee of Sponsoring Organizations (COSO)

An organization that identifies essential components of effective internal control including control environment, risk assessment, control activities, information & communication, and monitoring.

Principle of Establish Responsibilities

Principle that requires tasks to be clearly defined and assigned to specific individuals to improve accountability in internal control.

Petty Cash Fund

A small amount of cash kept on hand to pay for minor expenses, typically requiring documentation for expenditures.

Bank Reconciliation

A process that explains the difference between the cash balance reported on a bank statement and the cash balance in the company's accounting records.

Days’ Sales Uncollected Ratio

A measure of liquidity calculated as accounts receivable divided by net sales, multiplied by 365, indicating the average time to collect receivables.

Fraud Triangle

A model explaining the factors that lead to fraud, consisting of opportunity, pressure, and rationalization.

Control of Cash Payments

Internal controls focusing on safeguarding cash payments to prevent unauthorized transactions, including requiring checks for payments.

Voucher System

A control method for verifying, approving, and recording liabilities before cash payments are made.