Financial Accounting - Chapter 7

Bank reconciliation

the process of comparing the bank’s account balance with the company’s balance, and explaining the differences to make them agree

Bank statement

a statement received monthly from the bank that shows the depositor’s bank transactions and balances

Bonding

obtaining insurance protection against theft by employees

Cash

resources that consist of coins, currency, checks, money orders, and money on hand or on deposit in a bank or similar depository

Cash budget

a projection of anticipated cash flows, usually over a one-to-two-year period

Cash equivalents

short-term, highly liquid investments that can be readily converted to a specific amount of cash and which are relatively insensitive to interest rate changes

Committee on Sponsoring Organizations (COSO)

an initiative among five leading accounting and finance organizations to provide frameworks and guidance on enterprise risk management, internal control, and fraud deferrence

Deposits in transit

deposits recorded by the depositor that have not been recorded by the bank

Electric funds transfer (EFT)

a disbursement system that uses wire, telephone, or computer to transfer cash from one location to another

Fraud

a dishonest act by an employee that results in personal benefit to the employee at a cost to the employer

Fraud triangle

the three factors that contribute to the fraudulent activity by employees: opportunity, financial pressure, and rationalization

Internal auditors

company employees who continuously evaluate the effectiveness of the company’s internal control systems

Internal control

a process designed to provide reasonable assurance regarding the achievement of company objectives related to operation, reporting, and compliance

NSF check

a check that is not paid by a bank because of insufficient funds in a bank account

Outstanding checks

checks issued and recorded by a company that have not been paid by the bank

Petty cash fund

a cash fund used to pay relatively small amounts

Restricted cash

cash that is not available for general use but instead is restricted for a particular purpose

Voucher system

a network of approvals by authorized individuals, acting independently, to ensure that all disbursements by check are proper