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.

Deposits in transit

Deposits recorded by the depositor that have not been recorded by the bank.

Electronic 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 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 operations, 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.

Sarbanes-Oxley Act (SOX)

Law that requires publicly traded companies to maintain adequate systems of internal control.

Treasurer

Employee responsible for the management of a company’s cash.

Voucher

An authorization form prepared for each expenditure in a voucher system.

Voucher system

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