accounting chapter 7 Flashcards
sarbanes-oxely act (sox)
Requires companies to review internal control and take responsibility for the accuracy and completeness of their financial reports.
internal control
The organizational plan and all the related measures adopted by an entity to safeguard assets, encourage employees to follow company policies, promote operational efficiency, and ensure accurate and reliable accounting records.
committee of sponsoring organization (COSO)
A committee that provides thought leadership related to enterprise risk management, internal control, and fraud deterrence.
internal control report
A report by management describing its responsibility for and the adequacy of internal controls over financial reporting.
public company
A company that sells its stock to the general public
internal auditor
An employee of the business who ensures the company’s employees are following company policies, that the company meets all legal requirements, and that operations are running efficiently
external auditor
An outside accountant, completely independent of the business, who evaluates the controls to ensure that the financial statements are presented fairly, in accordance with GAAP
separation of duties
Dividing responsibilities between two or more people to limit fraud and promote the accuracy of accounting records.
encryption
Rearranging plain-text messages by a mathematical processthe primary method of achieving security in e-commerce.
firewall
A device that enables members of a local network to access the network, while keeping nonmembers out of the network.
collusion
Two or more people working together to circumvent internal controls and defraud a company
remittance advice
An optional attachment to a check that tells the business the reason for the paymen
lock-box system
A system in which customers send their checks to a post office box that belongs to a bank. A bank employee empties the box daily and records the deposits into the company’s bank account.
evaluated receipts settlement (ERS)
A procedure that compresses the payment approval process into a single step by comparing the receiving report to the purchase order.
electronic data interchange (EDI)
A streamlined process that bypasses paper documents altogether. Computers of customers communicate directly with the computers of suppliers to automate routine business transactions.
petty cash
A fund containing a small amount of cash that is used to pay for minor expenditures
imprest system
A way to account for petty cash by maintaining a constant balance in the petty cash account. At any time, cash plus petty cash tickets must total the amount allocated to the petty cash fund
signature card
A card that shows each authorized person’s signature for a bank account.
deposit ticket
A bank form that is completed by the customer and shows the amount of each deposit
check
A document that instructs a bank to pay the designated person or business a specified amount of money
maker
The party who issues the check.
payee
The individual or business to whom the check is paid
routing number
On a check, the 9-digit number that identifies the bank upon which the payment is drawn.
account number
On a check, the number that identifies the account upon which the payment is drawn.
bank statement
A document from the bank that reports the activity in the customer’s account. It shows the bank account’s beginning and ending balances and lists the month’s cash transactions conducted through the bank account.
canceled checks
Physical or scanned copies of the maker’s cashed (paid) checks.
electronic funds transfer (EFT)
A system that transfers cash by electronic communication rather than by paper documents
bank reconciliation
A document explaining the reasons for the difference between a depositor’s cash records and the depositor’s cash balance in its bank account
timing difference
Difference that arises between the balance on the bank statement and the balance on the company’s books because of a time lag in recording transactions
deposit in transit
a deposit recorded by the company but not yet by its bank
outstanding check
A check issued by a company and recorded on its books but not yet paid by its bank
credit memorandum
An increase in a bank account.
debit memorandum
A decrease in a bank account.
non sufficient funds (NSF) check
A check for which the maker’s bank account has insufficient money to pay the check.
cash ratio
A measure of a company’s ability to pay current liabilities from cash and cash equivalents: (Cash + Cash equivalents) / Total current liabilities
cash equivalent
A highly liquid investment that can be converted into cash in three months or less.
