Chapter 7: Internal Control and Cash

Question 1

What are the three objectives of internal control?

Answer 1

• Assets are safeguarded and used for business purposes.
• Business information is accurate.
• Employees and managers comply with laws and regulations.

Question 2

bank reconciliation

Answer 2

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

Question 3

bank statement

Answer 3

A summary of all bank transactions, which is made available online or mailed to the account holder each month.

Question 4

cash

Answer 4

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

Question 5

cash burn

Answer 5

A company’s monthly cash expenses often used in the calculation of cash to monthly cash expenses ratio.

Question 6

cash disbursements journal

Answer 6

A record of all cash payments made by the business.

Question 7

cash equivalents

Answer 7

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

Question 8

cash over and short account

Answer 8

An account that records errors in cash sales or errors in making change that cause the amount of actual cash on hand to differ from the beginning amount of cash plus the cash sales for the day.

Question 9

cash receipts journal

Answer 9

A record of all cash received by the business from any source.

Question 10

cash to monthly cash expenses

Answer 10

A company’s monthly cash expenses in relation to its cash on hand, often used to assess how long a company can continue to operate without additional financing, positive cash flow, or financial distress.

Question 11

collusion

Answer 11

An illegal agreement or cooperation to defraud others of their legal rights.

Question 12

compensating balance

Answer 12

A requirement by some banks requiring account holders to maintain minimum cash balances in their bank accounts.

Question 13

control environment

Answer 13

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

Question 14

credit card

Answer 14

A card allowing customers to electronically withdraw cash or pay for purchases. The funds increase the amount the customer owes to a third party.

Question 15

data encryption

Answer 15

The process of translating computer information into code.

Question 16

debit card

Answer 16

A card allowing customers to electronically withdraw cash or pay for purchases. The funds are immediately withdrawn from the customer’s bank account.

Question 17

electronic funds transfer (EFT)

Answer 17

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

Question 18

elements of internal control

Answer 18

The control environment, risk assessment, control procedures, information and communication, and monitoring.

Question 19

employee fraud

Answer 19

The intentional act of deceiving an employer for personal gain.

Question 20

external auditors

Answer 20

Independent public accountants who test the reasonableness of a company’s financial records and verify the accuracy of the financial statements.

Question 21

internal auditors

Answer 21

Internal employees responsible for ensuring proper recording of a company’s financial transactions and day-to-day monitoring of the internal control system.

Question 22

NSF cheques

Answer 22

A term used when a cheque is written on an account with not sufficient funds.

Question 23

petty cash funds

Answer 23

A special cash fund to pay relatively small amounds.

Question 24

special-purpose fund

Answer 24

A cash fund for a special business need.

Question 25

voucher

Answer 25

A form for recording relevant data about a liability and the details of its payment.

Question 26

voucher system

Answer 26

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

Question 27

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

Answer 27

bank reconciliation

Question 28

A summary of all bank transactions, which is made available online or mailed to the account holder each month.

Answer 28

bank statement

Question 29

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

Answer 29

cash

Question 30

A company’s monthly cash expenses often used in the calculation of cash to monthly cash expenses ratio.

Answer 30

cash burn

Question 31

A record of all cash payments made by the business.

Answer 31

cash disbursements journal

Question 32

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

Answer 32

cash equivalents

Question 33

An account that records errors in cash sales or errors in making change that cause the amount of actual cash on hand to differ from the beginning amount of cash plus the cash sales for the day.

Answer 33

cash over and short account

Question 34

A record of all cash received by the business from any source.

Answer 34

cash receipts journal

Question 35

A company’s monthly cash expenses in relation to its cash on hand, often used to assess how long a company can continue to operate without additional financing, positive cash flow, or financial distress.

Answer 35

cash to monthly cash expenses

Question 36

An illegal agreement or cooperation to defraud others of their legal rights.

Answer 36

collusion

Question 37

A requirement by some banks requiring account holders to maintain minimum cash balances in their bank accounts.

Answer 37

compensating balance

Question 38

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

Answer 38

control environment

Question 39

A card allowing customers to electronically withdraw cash or pay for purchases. The funds increase the amount the customer owes to a third party.

Answer 39

credit card

Question 40

The process of translating computer information into code.

Answer 40

data encryption

Question 41

A card allowing customers to electronically withdraw cash or pay for purchases. The funds are immediately withdrawn from the customer’s bank account.

Answer 41

debit card

Question 42

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

Answer 42

electronic funds transfer (EFT)

Question 43

The control environment, risk assessment, control procedures, information and communication, and monitoring.

Answer 43

elements of internal control

Question 44

The intentional act of deceiving an employer for personal gain.

Answer 44

employee fraud

Question 45

Independent public accountants who test the reasonableness of a company’s financial records and verify the accuracy of the financial statements.

Answer 45

external auditors

Question 46

Internal employees responsible for ensuring proper recording of a company’s financial transactions and day-to-day monitoring of the internal control system.

Answer 46

internal auditors

Question 47

A term used when a cheque is written on an account with not sufficient funds.

Answer 47

NSF cheques

Question 48

A special cash fund to pay relatively small amounds.

Answer 48

petty cash funds

Question 49

A cash fund for a special business need.

Answer 49

special-purpose fund

Question 50

A form for recording relevant data about a liability and the details of its payment.

Answer 50

voucher

Question 51

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

Answer 51

voucher system