accounting chapter 7

Question 1

sarbanes-oxely act (sox)

Answer 1

Requires companies to review internal control and take responsibility for the accuracy and completeness of their financial reports.

Question 2

internal control

Answer 2

The organizational plan and all the related measures adopted by an entity to safeguard assets, encourage employees to follow company policies, promote operational efficiency, and ensure accurate and reliable accounting records.

Question 3

committee of sponsoring organization (COSO)

Answer 3

A committee that provides thought leadership related to enterprise risk management, internal control, and fraud deterrence.

Question 4

internal control report

Answer 4

A report by management describing its responsibility for and the adequacy of internal controls over financial reporting.

Question 4

public company

Answer 4

A company that sells its stock to the general public

Question 5

internal auditor

Answer 5

An employee of the business who ensures the company’s employees are following company policies, that the company meets all legal requirements, and that operations are running efficiently

Question 6

external auditor

Answer 6

An outside accountant, completely independent of the business, who evaluates the controls to ensure that the financial statements are presented fairly, in accordance with GAAP

Question 7

separation of duties

Answer 7

Dividing responsibilities between two or more people to limit fraud and promote the accuracy of accounting records.

Question 8

encryption

Answer 8

Rearranging plain-text messages by a mathematical process—the primary method of achieving security in e-commerce.

Question 9

firewall

Answer 9

A device that enables members of a local network to access the network, while keeping nonmembers out of the network.

Question 10

collusion

Answer 10

Two or more people working together to circumvent internal controls and defraud a company

Question 11

remittance advice

Answer 11

An optional attachment to a check that tells the business the reason for the paymen

Question 12

lock-box system

Answer 12

A system in which customers send their checks to a post office box that belongs to a bank. A bank employee empties the box daily and records the deposits into the company’s bank account.

Question 13

evaluated receipts settlement (ERS)

Answer 13

A procedure that compresses the payment approval process into a single step by comparing the receiving report to the purchase order.

Question 14

electronic data interchange (EDI)

Answer 14

A streamlined process that bypasses paper documents altogether. Computers of customers communicate directly with the computers of suppliers to automate routine business transactions.

Question 15

petty cash

Answer 15

A fund containing a small amount of cash that is used to pay for minor expenditures

Question 16

imprest system

Answer 16

A way to account for petty cash by maintaining a constant balance in the petty cash account. At any time, cash plus petty cash tickets must total the amount allocated to the petty cash fund

Question 17

signature card

Answer 17

A card that shows each authorized person’s signature for a bank account.

Question 18

deposit ticket

Answer 18

A bank form that is completed by the customer and shows the amount of each deposit

Question 19

check

Answer 19

A document that instructs a bank to pay the designated person or business a specified amount of money

Question 20

maker

Answer 20

The party who issues the check.

Question 21

payee

Answer 21

The individual or business to whom the check is paid

Question 22

routing number

Answer 22

On a check, the 9-digit number that identifies the bank upon which the payment is drawn.

Question 23

account number

Answer 23

On a check, the number that identifies the account upon which the payment is drawn.

Question 24

bank statement

Answer 24

A document from the bank that reports the activity in the customer's account. It shows the bank account's beginning and ending balances and lists the month's cash transactions conducted through the bank account.

Question 25

canceled checks

Answer 25

Physical or scanned copies of the maker's cashed (paid) checks.

Question 26

electronic funds transfer (EFT)

Answer 26

A system that transfers cash by electronic communication rather than by paper documents

Question 27

bank reconciliation

Answer 27

A document explaining the reasons for the difference between a depositor's cash records and the depositor's cash balance in its bank account

Question 28

timing difference

Answer 28

Difference that arises between the balance on the bank statement and the balance on the company's books because of a time lag in recording transactions

Question 29

deposit in transit

Answer 29

a deposit recorded by the company but not yet by its bank

Question 30

outstanding check

Answer 30

A check issued by a company and recorded on its books but not yet paid by its bank

Question 31

credit memorandum

Answer 31

An increase in a bank account.

Question 32

debit memorandum

Answer 32

A decrease in a bank account.

Question 33

non sufficient funds (NSF) check

Answer 33

A check for which the maker's bank account has insufficient money to pay the check.

Question 34

cash ratio

Answer 34

A measure of a company's ability to pay current liabilities from cash and cash equivalents: (Cash + Cash equivalents) / Total current liabilities

Question 35

cash equivalent

Answer 35

A highly liquid investment that can be converted into cash in three months or less.