Acc ch7 PT

Internal Control

Internal Control

A system used by companies to protect assets, ensure accurate financial reporting, and comply with laws.

Petty Cash Fund

A small amount of cash on hand used for minor expenses.

Replenishing Petty Cash

The process of refilling the petty cash fund back to its original amount when it is low.

Deposits in Transit

Amounts that have been recorded on the company’s books but not yet processed by the bank.

NSF Check

A check that cannot be processed because the account holder has insufficient funds.

Bank Reconciliation

The process of comparing the bank statement with the company's records.

Outstanding Checks

Checks that have been written and recorded but not yet cleared by the bank.

Establishment of Responsibility

A key internal control principle that dictates assigning responsibility to specific employees for specific tasks.

Segregation of Duties

An internal control principle that separates conflicting duties to reduce risk of error or fraud.

Cash Equivalents

Short-term investments that are easily convertible to cash, typically with maturity of three months or less.

Bank Service Charge

Fees charged by the bank for account services.

Documentation Procedures

The process of creating, maintaining, and ensuring proper records to support transactions.

Cash Over and Short

An account used to record discrepancies between the actual cash balance and the recorded cash balance.

Imprest Petty Cash

A fixed amount of cash that is maintained in a petty cash fund; replenishment is required periodically.

Accounting Error Correction

Journal entries made to adjust incorrect recordings in the financial statements.

Independent Internal Verification

Review and verification of financial records and transactions by independent personnel.

Physical Controls

Measures to safeguard assets such as locks, safes, and surveillance cameras.

EFT Transfer

Electronic Funds Transfer; a method of transferring money electronically.

Cash Balance per Bank

The amount of cash that appears on the bank statement.

Book Balance Adjustments

Entries made to the company's accounting records to reconcile the cash accounts.