Chapter 7 Terms Flashcards
Bank overdraft
What occurs when withdrawals are more than the amount available in the bank account.
Bank reconciliation
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.
Bank statement
A statement received monthly from the bank that shows the depositor’s bank transactions and balances.
Bonding
Obtaining insurance protection against theft by employees.
Cash
Resources such as coins, currency (paper money), cheques, money orders, travellers’ cheques, and money on deposit in a bank or similar depository.
Cash equivalents
Highly liquid, short-term investments with maturities of three months or less that are subject to an insignificant risk of changes in value.
Clearing
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.
Credit memoranda (CM)
Supporting documentation for increases to a bank account that appear on a bank statement.
Debit memoranda (DM)
Supporting documentation for decreases to a bank account that appear on a bank statement.
Deposits in transit
Deposits recorded by the depositor that have not been recorded by the bank.
Electronic funds transfer (EFT)
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.
External auditors
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.
Fraud
An intentional dishonest act that results in a personal financial benefit by misappropriating (stealing) assets or misstating financial statements.
Fraud triangle
The three factors that contribute to fraudulent activity by employees: opportunity, financial pressure, and rationalization.
Internal auditors
The three factors that contribute to fraudulent activity by employees: opportunity, financial pressure, and rationalization.
Internal control
Company employees who evaluate the effectiveness of the company’s system of internal control.
NSF (not sufficient funds) cheque
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.
Outstanding cheques
Cheques issued and recorded by a company that have not been paid by the bank.
Petty cash fund
A cash fund that is used for paying relatively small amounts.
Reconciling the bank account
The process of making the balance in a company’s general ledger cash account agree with the balance per bank.
Restricted cash
Cash that is not available for general use, but instead is restricted for a particular purpose.
