Chapter 6 Terms Flashcards
Internal Control System
policies and procedures used to:
protect assets
ensure reliable accounting
promote efficient operations
uphold company policies
Sarbanes-Oxley Act
requires managers and auditors of companies whose stock is traded on an exchange to document and verify internal controls.
Committee of Sponsoring Organization’s (COSO) five ingredients for internal control…
Control environment, risk assessment, control activities, information and communication, and monitoring.
Fraud Triangle
Opportunity, pressure, and rationalization
Liquidity
A company’s ability to pay for its current liabilities.
Liquid Assets
Cash and similar assets
Cash Equivalents
Short-term, highly liquid investment assets (readily convertible to known cash amount and close enough to due to date so there market value will not change).
Cash Short and Over Account
income statement account recording income effects of cash short and over
Voucher System
A set of procedures and approvals designed to control cash payments and acceptance of liabilities.
Petty Cash
small payments for items such as shipping fees, minor repairs, and low-cost supplies.
Signature Card
a item which banks use to verify signatures
Electronic Funds Transfer (EFT)
The electronic transfer of cash of one party to another.
Bank reconciliation
explains differences depositor’s records and the bank’s records
Deposits in Transit
Deposits in the depositor’s books, but not yet the bank’s book.
Outstanding Checks
Checks written by the depositor, subtracted on the depositor’s books, and sent to the payee but not turned in for payment at the bank.
