Chapter 6

Question 1

Report that explains the difference between the book (company) balance of cash and the cash balance reported on the bank statement.

Answer 1

BANK RECONCILIATION

Question 2

Bank report on the depositor’s beginning and ending cash balances, and a listing of its changes, for a period.

Answer 2

BANK STATEMENT

Question 3

Checks that the bank has paid and deducted from the depositor’s account.

Answer 3

CANCELED CHECKS

Question 4

Includes currency, coins, and amounts on deposit in bank checking or savings accounts.

Answer 4

CASH

Question 5

Short-term, investment assets that are readily convertible to a known cash amount or sufficiently close to their maturity date (usually within 90 days) so that market value is not sensitive to interest rate changes.

Answer 5

CASH EQUIVALENTS

Question 6

Income statement account used to record cash overages and cash shortages arising from errors in cash receipts or payments.

Answer 6

CASH OVER AND SHORT

Question 7

Document signed by a depositor instructing the bank to pay a specified amount to a designated recipient.

Answer 7

CHECK

Question 8

Another name for a cash disbursements journal when the journal has a column for check numbers.

Answer 8

CHECK REGISTER

Question 9

A joint initiative of five private sector organizations dedicated to providing thought leadership through the development of frameworks and guidance on enterprise risk management, internal control, and fraud deterrence.

Answer 9

COMMITTEE OF SPONSORING ORGANIZATIONS (C0S0)

Question 10

Measure of the liquidity of receivables computed by dividing the current balance of receivables by the annual credit (or net) sales and then multiplying by 365; also called DAYS’ SALES IN RECEIVABLES.

Answer 10

DAYS’ SALES UNCOLLECTED

(A/R / Net Sales) * 365

Question 11

Lists items such as currency, coins, and checks deposited and their corresponding dollar amounts.

Answer 11

DEPOSIT TICKET

Question 12

Deposits recorded by the company but not yet recorded by its bank.

Answer 12

DEPOSITS IN TRANSIT

Question 13

Expenses resulting from not taking advantage of cash discounts on purchases.

Answer 13

DISCOUNTS LOST

Question 14

Use of electronic communication to transfer cash from one party to another.

Answer 14

ELECTRONIC FUNDS TRANSFER (EFT)

Question 15

Method of recording purchases at the full invoice price without deducting any cash discounts.

Answer 15

GROSS METHOD

Question 16

All policies and procedures used to protect assets, ensure reliable accounting, promote efficient operations,and urge adherence to company policies.

Answer 16

INTERNAL CONTROL SYSTEM

Question 17

Itemized record of goods prepared by the vendor that lists the customer’s name, items sold, sales prices, and terms of sale.

Answer 17

INVOICE

Question 18

Document containing a checklist of steps necessary for approving the recording and payment of an invoice; also called CHECK AUTHORIZATION.

Answer 18

INVOICE APPROVAL

Question 19

Resources such as cash that are easily converted into other assets, or used to pay for goods, services, or liabilities.

Answer 19

LIQUID ASSETS

Question 20

Availability of resources to meet short-term cash requirements.

Answer 20

LIQUIDITY

Question 21

Method of recording purchases at the full invoice price less any cash discounts.

Answer 21

NET METHOD

Question 22

Checks written and recorded by the depositor but not yet paid by the bank at the bank statement date.

Answer 22

OUTSTANDING CHECKS

Question 23

Small amount of cash in a fund to pay minor expenses; accounted for using an imprest system.

Answer 23

PETTY CASH

Question 24

Principles prescribing management to establish responsibility, maintain records, insure assets, separate record-keeping from custody of assets, divide responsibility for related transactions, apply technological controls & perform reviews.

Answer 24

PRINCIPLES OF INTERNAL CONTROL

Question 25

Document used by the purchasing department to place an order with a seller (vendor).

Answer 25

PURCHASE ORDER

Question 26

Document listing merchandise needed by a department and requesting it be purchased.

Answer 26

PURCHASE REQUISITION

Question 27

Form used to report that ordered goods are received and to describe their quantity and condition.

Answer 27

RECEIVING REPORT

Question 28

Created the Public Company Accounting Oversight Board, regulates analyst conflicts, imposes corporate governance requirements, enhances accounting and control disclosures, impacts insider transactions and executive loans, establishes new types of criminal conduct, and expands penalties for violations of federal securities laws.

Answer 28

SARBANES-OXLEY ACT

Question 29

Requires management and the external auditor to report on the adequacy of a company’s internal control on financial reporting, which is the most costly aspect of SOX for companies to implement as documenting and testing important financial manual and automated controls require enormous efforts. Section 404 also requires management to produce an ‘internal control report’ as part of each annual SEC report that affirms ‘the responsibility of management for establishing and maintaining an adequate internal control structure & procedures for financial reporting.’

Answer 29

SECTION 404 (of SOX)

Question 30

Includes the signatures of each person authorized to sign checks on a bank account.

Answer 30

SIGNATURE CARD

Question 31

Buyer of goods or services.

Answer 31

VENDEE

Question 32

Seller of goods or services.

Answer 32

VENDOR

Question 33

Internal file used to store documents and information to control cash disbursement and to ensure that a a transaction is properly authorized and recorded.

Answer 33

VOUCHER

Question 34

Journal (referred to as Book of Original Entry) in which all vouchers are recorded after they have been approved.

Answer 34

VOUCHER REGISTER

Question 35

Procedures and approvals designed to control cash disbursements and acceptance of obligations.

Answer 35

VOUCHER SYSTEM

   purchase requisition
   purchase order
   invoice
   receiving report
   invoice approval (initiates recording of purch)
    payment

Question 36

How is the Bank side of the Bank Reconciliation calculated?

Answer 36

BALANCE per BANK
(OUTSTANDING CHECKS)
\+ DEPOSITS IN TRANSIT
\+/- ERRORS MADE BY BANK
= ADJUSTED BANK BALANCE

Question 37

How is the Book side of the Bank Reconciliation calculated?

Answer 37

BALANCE per BOOKS
\+ COLLECTIONS BY BANK (N/R)
\+ INTEREST EARNED (Int. Rev.)
 (NSF CHECKS) (A/R)
 (BANK SVC CHGS) (Misc. Exp.)
\+/- ERRORS IN BOOKS (Adj. to ? Acct.)
=  ADJUSTED BOOK BALANCE