Chapter 4: Cash and Internal Controls

bank reconciliation

matching the balance of cash in the bank account with the balance of cash in the company’s own records

cash

currency, coins, balances in savings and checking accounts, items acceptable for deposit in these accounts (such as checks received from customers), cash to be collected from debit and credit card sales, and cash equivalents

cash equivalents

short-term investments that have a maturity date no longer than three months from the date of purchase

checks outstanding

checks written by the company but not yet reflected as a decrease in the bank’s cash balance

collusion

two or more people acting in coordination to circumvent internal controls

deposits outstanding

cash received by the company but not yet reflected as an increase in the bank’s cash balance

fraud triangle

the three elements present for every fraud-motivation, rationalization, and opportunity

free cash flows

simply measured as operating cash flows plus investing cash flows

internal controls

a company’s plan to

1) safeguard the company’s assets and

2) improve the accuracy and reliability of accounting information

NSF check

a check received from a customer and deposited by a company that is later determined by the bank to have nonsufficient funds

occupational fraud

the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employer’s resources

petty cash fund

small amount of cash kept on hand to pay for minor purchases

purchase cards

company-issued debit cards or credit cards that allow authorized employees to make purchases on behalf of the company

sarbanes-oxley act

known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly referred to as SOX; the act established a variety of guidelines related to auditor-client relations and internal control procedures

separation of duties

a set of procedures intended to separate employees duties for authorizing transactions, recording transactions, and controlling related assets