Chapter 7 Flashcards
Internal Control
organizational plan and all the related measures adopted by an entity to:
- safeguards companies assets
- encourages employers to follow company policies
- promotes operational efficiency
- ensures accurate,reliable accounting records
Sarbanes-Oxley Act (SOX)
requires companies to review internal controls
Collusion
is when two or more people work together to beat internal controls
Cost versus benefit
internal controls are judged based upon it
remittance advice
provides information about the payment
lock-box system
is a post office box that belongs to a bank, and the bank deposits the fund on behalf of the company
evaluated receipts settlement (ERS)
is a single-step payment approval process
electronic data interchange (EDI)
is a streamlined system that communicates inventory levels between vendors and retailes
Petty cash
is used as an in-office source of cash for small immediate purchases
imprest system
a way to account for petty cash by maintaining a constant balance in the petty cash account.
bank statement
reports the activity in a customer’s account
it shows the accounts beginning and ending balances
bank reconciliation
compares and explains the differences between cash on the company’s books and the bank’s record
timing differences
differences arise because of a time lag in the recording transactions
Bank side of the reconciliation includes:
- deposits in transit
- outstanding checks
- adjustments for bank errors
the book side of the reconciliation
- credit memorandum (bank collections)
- debit memorandum (bank payments)
- service charges
- interest revenue
- nonsufficient funds check (NSF)-when you don’t have enough money in account
- book errors
