6. Cash and internal control Flashcards
Cash equivalent
An investment that is readily convertible to a known amount of cash and has an original maturity to the investor of three months or less.
Bank statement:
A detailed list, provided by the bank, of all activity for a particular account during the month.
Outstanding check
A check written by a company but not yet presented to the bank for payment.
Deposit in transit
A deposit recorded on the books but not yet reflected on the bank statement.
Bank reconciliation
A form used by the accountant to reconcile or resolve any differences between the balance shown on the bank statement for a particular account with the balance shown in the accounting records.
Credit memoranda
Additions on a bank statement for such items as interest paid on the account and notes collected by the bank for the customer.
Debit memoranda
Deductions on a bank statement for items such as NSF checks and various service charges.
Petty cash fund
Money kept on hand for making minor disbursements in coin and currency rather than by writing checks.
Internal control system
Policies and procedures necessary to ensure the safeguarding of an entity’s assets, the reliability of its accounting records, and the accomplishment of overall company objectives.
Internal control report
A report required by Section 404 of the Sarbanes-Oxley Act to be included in a company’s annual report in which management assesses the effectiveness of the internal control structure.
Sarbanes-Oxley Act
An act of Congress in 2002 intended to bring reform to corporate accountability and stewardship in the wake of a number of major corporate scandals.
Public Company Accounting Oversight Board (PCAOB)
The five-member body created by the Sarbanes-Oxley Act that was given the authority to set auditing standards in the United States.
Board of directors
A group composed of key officers of a corporation and outside members responsible for general oversight of the affairs of the entity, including setting up an internal control system.
Audit committee
A board of directors subset that acts as a direct contact between the stockholders and the independent accounting firm.
Accounting system
Methods and records used to accurately report an entity’s transactions and to maintain accountability for its assets and liabilities.