Chapter 6

Question 1

Working capital

Answer 1

A business’ current assets minus its current liabilities

Question 2

Internal control structure

Answer 2

Set of policies and procedures that directs how employees should perform a business’ activities

Question 3

Cash

Answer 3

Money on hand, deposits in bank accounts, and cheque and credit card invoices that a business has received from its customers but not yet deposited

Question 4

Bank statement

Answer 4

Statement that summarises a business’ banking activities during the month

Question 5

Bank reconciliation

Answer 5

Schedule used to analyse the difference between the ending cash balance in a business’ accounting records and the ending cash balance reported by the bank on the business’ bank statement

Question 6

Deposit in transit

Answer 6

A cash receipt that a business has added to its cash account that that the bank has not deducted from the cash balance reported on the bank statement because the cheque has not yet ‘cleared’ the bank

Question 7

NSF (not sufficient funds)

Answer 7

A customer’s cheque that has ‘bounced’ (the business’ bank is unable to collect because the customer’s bank account has insufficient funds to cover the cheque

Question 8

Accounts receivable

Answer 8

Amounts owed by customers to the business

Question 9

Inventory

Answer 9

Merchandise a retail business is holding for resale

Question 10

Purchase order

Answer 10

Document authorising a supplier to ship the items listed on the document at a specific price

Question 11

Specific identification method

Answer 11

Allocates costs to cost of goods sold and to ending inventory by assigning to each unit sold and to each unit in ending inventory the cost to a business of purchasing that particular unit

Question 12

Accounts payable

Answer 12

Amounts owed to suppliers for credit purchases