Chapter 7

Question 1

Bank reconciliation

Answer 1

The analysis that details the items responsible for the difference between the cash balance reported on the bank statement and the balance of the cash account in the ledger.

Question 2

Bank statement

Answer 2

A summary of all checking account transactions mailed to the depositor or made available online by the bank each month.

Question 3

Cash

Answer 3

Coins, currency (paper money), checks, money orders, and money on deposit that is available for unrestricted withdrawal from banks and other financial institutions.

Question 4

Cash equivalents

Answer 4

Highly liquid investments that are usually reported with cash on the balance sheet.

Question 5

Cash short and over account

Answer 5

An account in which are recorded errors in cash sales or errors in making change causing the amount of actual cash on hand to differ from the beginning amount of cash plus the cash sales for the day.

Question 6

Compensating balance

Answer 6

A minimum cash balance required by some banks to be maintained in a bank account.

Question 7

Control environment

Answer 7

The overall attitude of management and employees about the importance of controls.

Question 8

Days’ cash on hand

Answer 8

A measure of how long a company could survive if its sources of revenue were to decline significantly, computed as cash and short-term investments divided by daily cash operating expenses.

Question 9

Electronic funds transfer (EFT)

Answer 9

A system in which computers rather than paper (money, checks, etc.) are used to effect cash transactions.

Question 10

Elements of internal control

Answer 10

The elements that together sustain internal control and include the control environment, risk assessment, control activities, information and communication, and monitoring.

Question 11

Employee fraud

Answer 11

The intentional act of deceiving an employer for personal gain.

Question 12

Internal control

Answer 12

The policies and procedures used to safeguard assets, ensure accurate business information, and ensure compliance with laws and regulations.

Question 13

Petty cash fund

Answer 13

A special cash fund to pay relatively small amounts.

Question 14

Sarbanes-Oxley Act

Answer 14

An act passed by Congress to restore public confidence and trust in the financial statements of companies.

Question 15

Special-purpose funds

Answer 15

Cash funds used for a special business need.

Question 16

Voucher

Answer 16

Any document that serves as proof of authority to pay cash or issue an electronic funds transfer, but for many businesses, is a special form used to record data about a liability and the details of its payment.

Question 17

Voucher system

Answer 17

A set of procedures that uses vouchers for authorizing and recording liabilities and cash payments.