Chapter 7 Terms

Question 1

Bank overdraft

Answer 1

What occurs when withdrawals are more than the amount available in the bank account.

Question 2

Bank reconciliation

Answer 2

A comparison of the balance in a company’s bank account with the balance in the cash account at a point in time that explains any differences.

Question 3

Bank statement

Answer 3

A statement received monthly from the bank that shows the depositor’s bank transactions and balances.

Question 4

Bonding

Answer 4

Obtaining insurance protection against theft by employees.

Question 5

Cash

Answer 5

Resources such as coins, currency (paper money), cheques, money orders, travellers’ cheques, and money on deposit in a bank or similar depository.

Question 6

Cash equivalents

Answer 6

Highly liquid, short-term investments with maturities of three months or less that are subject to an insignificant risk of changes in value.

Question 7

Clearing

Answer 7

What occurs when a cheque or deposit is accepted by the maker’s bank. Clearing results in a transfer of funds from the maker’s bank to the payee’s bank.

Question 8

Credit memoranda (CM)

Answer 8

Supporting documentation for increases to a bank account that appear on a bank statement.

Question 9

Debit memoranda (DM)

Answer 9

Supporting documentation for decreases to a bank account that appear on a bank statement.

Question 10

Deposits in transit

Answer 10

Deposits recorded by the depositor that have not been recorded by the bank.

Question 11

Electronic funds transfer (EFT)

Answer 11

The electronic exchange or transfer of money from one account to another, either within a single financial institution or across multiple institutions, through computer-based systems.

Question 12

External auditors

Answer 12

The electronic exchange or transfer of money from one account to another, either within a single financial institution or across multiple institutions, through computer-based systems.

Question 13

Fraud

Answer 13

An intentional dishonest act that results in a personal financial benefit by misappropriating (stealing) assets or misstating financial statements.

Question 14

Fraud triangle

Answer 14

The three factors that contribute to fraudulent activity by employees: opportunity, financial pressure, and rationalization.

Question 15

Internal auditors

Answer 15

The three factors that contribute to fraudulent activity by employees: opportunity, financial pressure, and rationalization.

Question 16

Internal control

Answer 16

Company employees who evaluate the effectiveness of the company’s system of internal control.

Question 17

NSF (not sufficient funds) cheque

Answer 17

A cheque that is not paid by the customer’s bank and is returned to the depositor’s bank because of insufficient funds in the customer’s account.

Question 18

Outstanding cheques

Answer 18

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

Question 19

Petty cash fund

Answer 19

A cash fund that is used for paying relatively small amounts.

Question 20

Reconciling the bank account

Answer 20

The process of making the balance in a company’s general ledger cash account agree with the balance per bank.

Question 21

Restricted cash

Answer 21

Cash that is not available for general use, but instead is restricted for a particular purpose.