Chapter 4 Flashcards
Cash
Currency, coins, balances in savings and checking accounts, items acceptable for deposit in these accounts (such as checks received from customers), and cash equivalents.
Bank reconciliation
Matching the balance of cash in the bank account with the balance of cash in the company’s own records.
Cash equivalents
Short-term investments that have a maturity date no longer than three months from the date of purchase.
Checks outstanding
Checks the company has written that have not been subtracted from the bank’s record of the company’s balance.
Collusion
Two or more people acting in coordination to circumvent internal controls.
Deposits outstanding
Cash receipts of the company that have not been added to the bank’s record of the company’s balance.
Earnings quality
The ability of net income to help predict future performance of the company.
Fraud triangle
The three elements present for every fraud - motive, rationalization, and opportunity.
Free cash flow
Operating cash flows plus investing cash flows during the period.
Internal controls
A company’s plans to safeguard the company’s assets and improve the accuracy and reliability of accounting information.
NSF checks
Checks drawn on nonsufficient funds, or “bad” checks from customers.
Occupational fraud
The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employer’s resources.
Petty cash fun
Small amount of cash kept on hand to pay for minor purchases.
Sarbanes-Oxley Act
Known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly referred to as SOX; the act established a variety of guidelines related to auditor-client relations and internal control procedures.
Separation of duties
Authorizing transactions, recording transactions, and maintaining control of the related assets should be separated among employees.
