Chapter 7: Fraud, Internal control and Cash

Question 1

bank reconciliation

Answer 1

the process of comparing the bank’s account balance with the company’s balance, and explaining the differences to make them agree

Question 2

bank statement

Answer 2

a statement received monthly from the bank that shows the depositors bank transactions and balances

Question 3

bonding

Answer 3

obtaining insurance protections against theft by employees

Question 4

cash

Answer 4

resources that consist of coins, currency, checks, money orders, and money on hand or on deposit in a bank or similar depository

Question 5

cash budget

Answer 5

a projection of anticipated cash flows, usually over a one- to two-year period

Question 6

cash equivalents

Answer 6

short-term, highly liquid investments that can be readily converted to a specific amount of cash and which are relatively insensitive to interest rate changes

Question 7

deposits in transit

Answer 7

deposits recorded by the depositor that have not been recorded by the bank

Question 8

electronic funds transfer (EFT)

Answer 8

a disbursement system that uses wire, telephone, or computer to transfer cash from one location to another

Question 9

fraud

Answer 9

a dishonest act by an employee that results in personal benefit to the employee at a cost of the employer

Question 10

fraud triangle

Answer 10

the 3 factors that contribute to fraudulent activity by employees: opportunity, financial pressure, rationalization

Question 11

internal auditors

Answer 11

company employees who continuously evaluate the effectiveness of the company’s internal control systems

Question 12

internal control

Answer 12

all the related methods and measures adopted within an organization to safeguard assests and enhance the reliability of accounting records, increase efficiency of operations, and ensure compliance with laws and regulations

Question 13

NSF check

Answer 13

a check that is not paid by a bank because of insufficient funds in a bank account

Question 14

outstanding check

Answer 14

checks issued and recorded by a company that have not been paid by the bank

Question 15

petty cash fund

Answer 15

a cash fund used to pay relatively small amounts

Question 16

restricted cash

Answer 16

cash that is not available for general use but instead is restricted for a particular purpose

Question 17

sarbanes-oxley act (SOX)

Answer 17

law that requires publicly traded companies to maintain adequate systems of internal control

Question 18

treasurer

Answer 18

employee responsible for the management of a company’s cash

Question 19

voucher

Answer 19

an authorization form prepared for each expenditure in voucher system

Question 20

voucher system

Answer 20

a network of approvals by authorized individuals, acting independently, to ensure that all disbursements by check are proper.