Chapter 2 (Terms)

Cash: The most liquid asset, readily available for immediate use. Includes physical currency, coins, and demand deposits.

Money: A medium of exchange, a unit of account, and a store of value. Facilitates transactions and serves as a standard for measuring economic worth.

Cash on Hand: The physical currency and coins held by an individual or organization at a given point in time.

Cash in Bank: The balance held in a bank account, representing the amount of money deposited and available for withdrawal.

Coins and Currencies: The physical forms of money used in different countries, including paper bills and metal coins.

Demand Deposits: Funds held in checking accounts, allowing for immediate withdrawal upon request.

Checks: Written orders instructing a bank to pay a specified amount of money to a designated recipient.

Bank Drafts: Checks drawn by a bank on its own funds, guaranteeing payment upon presentation.

Money Orders: Prepaid checks issued by financial institutions, guaranteeing payment to the recipient.

Cash Funds Set Aside for Use in Current Operations: Amounts specifically allocated for ongoing business activities, such as payroll, expenses, or purchasing inventory.

Revolving Fund: A designated amount of cash used for recurring expenses, replenished as funds are spent. Examples include petty cash or travel funds.

Payroll Fund: A specific amount of money set aside to cover employee salaries and wages.

Change Fund: A small amount of cash kept on hand to provide change for customers.

Dividend Fund: A designated amount of cash used to pay dividends to shareholders.

Tax Fund: A specific amount of cash set aside to cover future tax liabilities.

Travel Fund: A designated amount of cash used for covering travel expenses, such as airfare, accommodation, and meals.

Interest Fund: A specific amount of cash set aside to pay interest on borrowed funds.

Other Types of Imprest Bank Account Used in Current Operations: Accounts with a fixed balance, replenished as funds are spent. Used for specific purposes, such as paying suppliers or covering specific expenses.

Postdated Checks: Checks written with a future date, indicating that payment is not due until that date.

IOUs or Advances to Employees: Informal agreements acknowledging a debt owed to an employee, often for salary or expenses.

Cash Funds Not Available for Use in Current Operations: Amounts restricted for specific purposes, such as sinking funds, redemption funds, or expansion funds. These funds are not readily accessible for day-to-day operations.

Sinking Fund: A dedicated fund used to retire debt by gradually accumulating cash over time.

Preference Share Redemption Fund: A dedicated fund used to redeem preference shares at their maturity or upon specific conditions.

Plant Expansion Fund: A dedicated fund used for financing the expansion of a company's physical assets, such as buildings or equipment.

Depreciation Fund: A dedicated fund used to accumulate cash to replace assets as they depreciate over time.

Contingency Fund: A dedicated fund set aside to cover unexpected expenses or unforeseen events.

Insurance Fund: A dedicated fund used to pay insurance premiums or cover potential losses.

Postage Stamps: Pre-paid postage used to send mail. Not considered cash as they are not readily convertible to cash.

Unused Credit Line: The remaining credit available to a borrower under a credit agreement. Not considered cash as it is a potential source of funds, not actual cash on hand.

Line of Credit: A pre-approved loan allowing a borrower to access funds up to a certain limit, as needed. Not considered cash as it is a potential source of funds, not actual cash on hand.

Stale Checks: Checks that have expired due to exceeding the allowed time for payment. No longer valid for payment and are not considered cash.

Cash Equivalents: Highly liquid investments readily convertible to cash with a maturity of less than three months. Examples include treasury bills, commercial paper, and money market instruments.

Debt Instruments: Securities representing a loan from an investor to a borrower, with the promise of repayment of principal and interest. Examples include bonds, notes, and commercial paper.

Treasury Bills: Short-term debt instruments issued by the government with maturities of less than a year.

Treasury Notes: Medium-term debt instruments issued by the government with maturities ranging from one to ten years.

Treasury Bonds: Long-term debt instruments issued by the government with maturities exceeding ten years.

Money Market Instruments: Short-term debt securities, typically with maturities less than a year, traded in the money market. Examples include treasury bills, commercial paper, and repurchase agreements.

Commercial Papers: Short-term unsecured debt instruments issued by corporations to finance short-term needs.

Time Deposit: A deposit held in a bank account for a fixed period, earning a fixed interest rate. Not readily available for immediate withdrawal.

Equity Securities: Represent ownership in a company, providing shareholders with voting rights and potential dividends. Examples include common stock and preferred stock.

Redeemable Preference Shares: A type of preferred stock that can be redeemed by the issuing company at a predetermined price.

Unrestricted Cash: Cash available for general business operations and not subject to any restrictions or limitations.

Unrestricted Cash Equivalents: Highly liquid investments readily convertible to cash with a maturity of less than three months, not subject to any restrictions or limitations.

Restricted Cash: Cash that is subject to specific limitations or restrictions on its use. These restrictions could be imposed by lenders, contracts, or regulatory requirements.

Realizable Value: The estimated amount of cash that can be realized from an asset upon its sale or disposal.

Unrestricted Deposits in Foreign Banks: Deposits held in foreign banks that are not subject to any restrictions or limitations.

Restricted Deposits in Foreign Banks: Deposits held in foreign banks that are subject to specific limitations or restrictions on their use.

Compensating Balance: A minimum balance required to be maintained in a bank account as a condition for obtaining a loan or other services.

Bank Overdraft: Occurs when a bank account is overdrawn, resulting in a negative balance.

Zero-Balancing Checking Account: A type of checking account where the balance is automatically adjusted to zero at the end of each day, transferring funds from a linked account to cover any overdrafts.

Master Account: A main account used to consolidate multiple sub-accounts for easier management and reporting.

Undeposited Collections: Cash receipts that have been received but not yet deposited into a bank account.

Internal Controls Over Cash: Procedures and processes designed to safeguard cash and prevent fraud, error, or misuse.

Segregation of Incompatible Duties: A key internal control principle that involves separating tasks that could lead to fraud or error if performed by the same person. This helps to prevent conflicts of interest and provides checks and balances.

Imprest System: A method of controlling cash disbursements by establishing a fixed amount of cash in a petty cash fund, which is replenished when expenditures reduce the balance.

Bank Reconciliation: A process used to match the bank statement balance with the company's cash balance, identifying any discrepancies and reconciling them.

Cash Counts: Periodic physical counts of cash on hand to verify the accuracy of records and detect any discrepancies.

Minimum Cash Balance: A predetermined amount of cash that a company aims to maintain to meet its day-to-day operating needs and ensure sufficient liquidity.

Lockbox Accounts: Special bank accounts where customers send payments directly, reducing the risk of loss or theft and speeding up cash collection.

Non-encashment of Personal Checks from Petty Cash Fund: An internal control practice that prohibits the use of personal checks for petty cash transactions, preventing potential misuse of funds.

Voucher System: A system used to control cash disbursements by requiring a voucher, a written authorization, for each payment.

Voucher: A document authorizing a payment, containing details about the payee, amount, and purpose of the payment.

Supporting Documents: Documents that provide evidence and justification for a payment, such as invoices, receipts, or contracts.

Voucher Package: A set of documents, including the voucher, supporting documents, and any other relevant information, used to support a payment.

Cash Shortage or Overage: A discrepancy between the actual amount of cash on hand and the recorded balance. A shortage indicates missing cash, while an overage indicates an excess amount.

Lapping: A type of fraud where a thief steals cash and replaces it with a later receipt, creating a cycle of theft and cover-up.

Kiting: A type of fraud where a thief uses multiple bank accounts to create fictitious balances, using checks to transfer money between accounts before they clear.

Bank Transfer Schedule: A schedule outlining planned transfers of funds between bank accounts, helping to track and monitor cash movements.

Proof of Cash: A document summarizing all cash receipts and disbursements over a period, reconciling the beginning and ending balances.

Cut-off Bank Statement: A statement provided by a bank showing transactions up to a specific point in time, used to reconcile cash balances at the end of an accounting period.

Window Dressing: Intentionally manipulating financial statements to present a more favorable financial position, often at the end of an accounting period. This can involve timing transactions or artificially inflating assets or earnings.