Chapter 2 Cash Transfer Methods Flashcards

1
Q

made on a paper document, which has traditionally been
physically routed from the payer to the payee, to the payee ’s bank, and then back to the payer ’ s bank.

A

check payment

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1
Q

made on a paper document, which has traditionally been
physically routed from the payer to the payee, to the payee ’s bank, and then back to the payer ’ s bank.

A

check payment

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2
Q

The vast majority of checks are issued directly by companies. However, they may also be issued directly by a bank

A

a bank check or bank draft

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3
Q

first, there is a delay while the payment is delivered through the postal service,

A

mail float

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4
Q

Second, the supplier must deposit the check at its bank; the time from when the supplier receives the check and deposits

A

processing float.

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5
Q

Third, the time between when the check is deposited and when it is available to the recipient. No longer than 2 days

A

availability float

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6
Q

The time between when the check is deposited and when it is
charged to the payer ’ s account

A

presentation float

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7
Q

The combination of the floats associated with these inbound and outbound check payments

A

net float

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8
Q

When a company has written a large volume of checks that have not yet
cleared, the available cash balance shown by the company ’ s bank will be
larger than the company ’ s ledger balance. If the treasurer can reliably
predict how long it will take for the checks to clear, it is then possible to
invest some of the cash that is available due to uncleared checks.

A

Investing Float - Related Funds

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9
Q

is the presumed date of receipt of the cash by the bank. Once the value date is reached, the payee has use of the funds. The value date may also be categorized by a bank as 1 - day float, 2+ - day float, or some similar term

A

Value Dating

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10
Q

bank assigns a mailbox address to the company, which forwards this information to its customers. The customers
mail their checks to the lockbox, where the bank opens the envelopes, scans all checks and accompanying documents, deposits the checks, and makes the scans available to the company through a web site.

A

a lockbox service.

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11
Q

allows a company to avoid the physical movement
of received checks to its bank. Instead, one can use a special scanner and scanning software to create an electronic image of each check, which it then transmits to the bank. The bank accepts the online image, posts it to the company ’ s account, and assigns funds availability based on a predetermined
schedule.

A

Remote Deposit Capture

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12
Q

The fl oat concept can also be applied to a company ’ s payments. The key area that can be lengthened is the presentation float. A check written on a New York or Chicago bank will likely have a minimal lapse of a day or so
before it is presented for payment. However, if a check is written on a bank in a remote location, such as Montana or Idaho, presentation may require several additional days, all of which allow a company to continue using its cash during that time.

A

Remote Disbursement

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13
Q

sends funds to the recipient ’ s bank account more rapidly
than any other form of payment, and is the standard form of international payment.

A

WIRE TRANSFERS

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14
Q

an electronic network for the processing of both credit and
debit transactions within the United States and Canada. ACH payments include direct deposit payroll, Social Security payments, tax refunds, and the direct payment of business - to - business and consumer bills

A

ACHPAYMENTS Automated Clearing House

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15
Q

allows a payee to initiate a debit of the payer ’ s bank account, with the funds shifting into the payee ’ s bank account. This is normally done with the written approval of the payer

A

ACH Debits Automated Clearing House

16
Q

A few large international banks have created links
between these systems, which simulate a global ACH system. Under their systems, a company enters payment information, which the banks then reformat into the standard format of the country where the payment will be
made.

A

Global ACH Payments

17
Q

an arrangement where the importer ’ s bank (the issuing bank) formally authorizes an obligation to pay the exporter ’ s bank during a specific period of time, assuming that several documented conditions have been met. The documents that must be presented to the issuing bank include an invoice and proof of delivery.

A

Letters of Credit

18
Q

If the exporter ’ s bank is unwilling to make this payment

A

advising bank

19
Q

merely passes along the documentation to the issuing bank

A

nominated bank

20
Q

If the exporter is uncertain of the reliability of the nominated bank, it may ask its own bank to confirm the letter of credit. If the bank agrees, then it is designated as

A

confirming bank

21
Q

can involve the use of debit cards, which deduct cash directly
from a company ’ s bank account, but more commonly employ credit cards .

A

PROCUREMENT CARDS

22
Q

Inbound cash payments tend to be for very small transactions, though possibly in very high volume, especially in retail situations. However, business -to - business cash payments are not common.

A

CASH PAYMENTS

23
Q

This section describes both basic and enhanced controls for multiple types of cash transfer. Flowcharts are included for the more comprehensive systems of control.

A

CASH TRANSFER CONTROLS

24
Q

assumes that a fully documented packet of payables information has already been created, which contains
receiving, purchase order, and supplier invoice information.

A

Controls for Check Payments

25
Q

Unused check stock should always be kept in a locked storage cabinet. In addition, the range of check numbers used should be stored in a separate location and cross - checked against the check numbers on the stored checks to
verify that no checks have been removed from the locked location.

A

Remove check stock from locked storage

26
Q

If a company uses any form of computerized check - printing equipment, it may be necessary to lock down all access to it. This can include any printers in which check stock is maintained, signature plates, and signature stamps.

A

Restrict access to check - signing equipment

27
Q

This control is useful when signature plates are used for
smaller check amounts. When signature plates are used, there is no longer a final review of payments before they are mailed. Therefore, requiring a “ real ”signature for large checks adds a final review point to the payment process.

A

Require a manual signature on checks exceeding a predetermined amount

28
Q

The check signer must compare the backup information attached to each check to the check itself, verifying the payee name, amount to be paid, and the due date.

A

Check signer compares voucher package to check

29
Q

Under this approach, a company sends a list of all checks issued to
its bank, which clears only checks on this list, rejecting all others. However, this approach also calls for consistent use of the positive pay concept, since any manual checks issued that are not included on the daily payments list to the bank will be rejected by the bank.

A

Implement positive pay

30
Q

There are several types of fraud that employees can use when a company pays with checks, while outside parties
can also modify issued checks or attempt to duplicate them. This problem disappears when______ are made instead.

A

Use electronic payments

31
Q

An excellent detective control, this approach ensures that any fraudulently modified checks or checks not processed through the standard accounting system will be spotted as soon as they clear the bank and are posted on the bank ’ s web site.

A

Reconcile the checking account every day

32
Q

eliminates the need to physically transfer check
payments to the local bank for deposit. However, the replacement process of converting the checks to an electronic format still requires some controls.

A

Controls for Remote Deposit Capture

33
Q

When processing checks through a remote deposit capture system, always print out a verification statement that the image was successfully sent to and received by the bank, and attach this verification to copies of the checks for storage. This ensures that the deposit has taken place.

A

Verify receipt by the bank

34
Q

Remote deposit capture works only for checks originating in the United States. However, if the person operating the scanning equipment were to mistakenly scan a foreign check, the system may indicate initial acceptance of the payment and then reject it a few days later

A

Train for handling of foreign checks

35
Q

can involve large amounts of money, and so require a
stringent set of controls to mitigate the risk of loss

A

Controls for Electronic Payments

36
Q

The greatest risk with a letter of credit is not being paid. The documents that a payee must present in order to be paid are usually prepared and controlled by other parties, and the terms of those documents may be very strictly defined, thereby delaying payment.

A

Controls for Letters of Credit

37
Q

policies in this section are used to designate a preferred form of funds transfer, and to define the authorizations for various transfers.

A

Cash Transfer Policies