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21 terms

Chapter 7: Fraud, Internal Control, and Cash

Financial Accounting, Seventh Edition Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
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Bank reconciliation
The process of comparing the bank's balance of an account with the company's balance and explaining any differences to make them agree.
Bank service charge
A fee charged by a bank for the use of its services.
Bank statement
A monthly statement from the bank that shows the depositor's bank transactions and balances.
Bonding
Obtaining insurance protection against misappropriation of assets 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 equivalents
Short-term, highly liquid investments that can be converted to a specific amount of cash.
Check
A written order signed by a bank depositor, directing the bank to pay a specified sum of money to a designated recipient.
Compensating balances
Minimum cash balances required by a bank in support of bank loans.
Deposits in transit
Deposits recorded by the depositor but not yet been recorded by the bank.
Electronic funds transfer (EFT)
A disbursement system that uses wire, telephone, or computers to transfer funds 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 system.
Internal control
All of the related methods and activities adopted within an organization to safeguard its assets and enhance the accuracy and reliability of its accounting records.
NSF check
A check that is not paid by a bank because of insufficient funds in a customer's bank account.
Outstanding checks
Checks issued and recorded by a company but not yet paid by the bank.
Petty cash fund
A cash fund used to pay relatively small amounts.
Restricted cash
Cash that must be used for a special purpose.
Sarbanes-Oxley Act of 2002 (SOX)
Regulations passed by Congress to try to reduce unethical corporate behavior.
Voucher
An authorization form prepared for each payment in a voucher system.
Voucher system
A network of approvals by authorized individuals acting independently to ensure that all disbursements by check are proper.