chapter 6 and 7 test Flashcards
cash equivalent
an investment that is readily convertible to a known amount of cash and has an original maturity to the investor of three months or less
bank statement
a detailed list, provided by the bank, of all activity for a particular account during the month
outstanding check
a check was written by a company but not yet presented to the bank for payment
deposit in transit
a deposit recorded on the books but not yet reflected on the bank statement
bank reconciliation
a form used by the accountant to reconcile or resolve any differences between the balances shown on the bank statement for a particular account with the balance shown in the accounting records
credit memoranda
additions on a bank statement for such items as interest paid on the account and notes collected by the bank for the customer
debit memoranda
deductions on a bank statement for items such as NSF checks and various service charges
internal control system
policies and procedures necessary to ensure the safeguarding of an entity’s assets, the reliability of its accounting records, and the accomplishments of overall company objectives
Sarbanes-Oxley Act
an act of congress in 2002 intended to bring reform to corporate accountability and stewardship in the wake of a number of major corporate scandals
internal control report
a report in which management assesses the effectiveness of the internal control structure
Public Company Accounting Oversight Board
the five-member body created by the Sarbanes-Oxley Act that was given the authority to set auditing standards in the US
Board of Directors
a group composed of key offices of a corporation and outside members responsible for general oversight of the affairs of the entity
audit committee
a board of directors subset that acts as a direct contact between the stockholders and the independent accounting firm
purchase requisition form
a form a department uses to initiate a request to order merchandise
purchase order
a form sent by the purchasing department to the supplier
invoice
a form sent by the seller to the buyer as evidence of a sale
blind receiving report
a form used by the receiving department to account for the quantity and condition of merchandise received from a supplier
invoice approval form
a form that shows the accuracy of all information about a purchase
accounts receivable
a receivable arising from the sale of goods or services with a verbal promise to pay
subsidiary ledger
the details of items that make up a general ledger account
control account
the general ledger account that is supported by the subsidiary ledger
net realizable value
the amount a company expects to collect on an account receivable
direct write-off method
the recognition of bad debts expense at the point an account is written off as uncollectible
allowance method
a method of estimating bad debts on the basis of either the net credit sales of the period or the accounts receivable at the end of the period
allowance for bad debts
a contra-asset account used to reduce accounts receivable to its net realizable value
aging schedule
a form used to categorize the various individual accounts receivable according to the length of time each has been outstanding
accounts receivable turnover ratio
a measure of the number of times accounts receivable is collected during the period
how to calculate the accounts receivable turnover ratio?
(net credit sales) / (average accounts receivable) = accounts receivable turnover ratio
promissory note
a written promise to repay a definite sum of money on demand or at a fixed or determinable date in the future
maker
the party that agrees to repay the money for a promissory note at some future date
payee
the party that will receive the money from a promissory note at some future date
note receivable
an asset resulting from the acceptance of a promissory note from another company
note payable
a liability resulting from the signing of a promissory note
principal (for promissory notes)
the amount of cash received, or the fair value of the products or services received, by the maker when a promissory note is issued
maturity date (for promissory notes)
the date the promissory note is due
term (for promissory notes)
the length of time between the date the promissory issued and the date it matures
maturity value (for promissory notes)
the amount of cash the maker is to pay the payee on the maturity date of the note
interest (for promissory notes)
the difference between the principal value of the note and its maturity value
discounting (for promissory notes)
the process of selling a promissory note
equity securities(stocks)
securities issued by corporations and governmental bodies as a form of borrowing
debt securities(bonds)
securities issued by corporations or governmental bodies as a form of borrowing
formula for interest
(principal) x (interest rate) x (time) = interest
