Chapter 4 Key Words

Question 1

when a person intentionally deceives another person for personal gain or to damage that person

Answer 1

fraud

Question 2

The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employer’s resources

Answer 2

occupational fraud

Question 3

The three elements present for every fraud— motivation, rationalization, and opportunity.

Answer 3

fraud triangle

Question 4

A company’s plans to (1) safeguard the company’s assets and (2) improve the accuracy and reliability of accounting information.

Answer 4

internal controls

Question 5

Known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly referred to as SOX; the act established a variety of guidelines related to auditor–client relations and internal control procedures.

Answer 5

Sarbanes-Oxley Act

Question 6

Authorizing transactions, recording transactions, and controlling related assets should be separated among employees.

Answer 6

separation of duties (pc)

Question 7

controls designed to keep error or fraud from occurring in the first place

Answer 7

preventive controls

Question 8

controls designed to detect errors or fraud that have already occurred

Answer 8

detective controls

Question 9

Two or more people acting in coordination to circumvent internal controls.

Answer 9

two or more people acting in coordination to circumvent internal controls

Question 10

Currency, coins, balances in savings and checking accounts, items acceptable for deposit in these accounts (such as checks received from customers), credit card and debit card sales, and cash equivalents

Answer 10

cash

Question 11

Short-term investments that have a maturity date no longer than three months from the date of purchase.

Answer 11

cash equivalents

Question 12

paper

Answer 12

cash and checks

Question 13

plastic

Answer 13

credit and debit cards

Question 14

transfer of funds directly from the bank account to the company’s bank

Answer 14

electronic funds tranfers (EFTs)

Question 15

Matching the balance of cash in the bank account with the balance of cash in the company’s own records.

Answer 15

bank reconciliation

Question 16

Cash receipts of the company that have not been added to the bank’s record of the company’s balance.

Answer 16

deposits outstanding

Question 17

Checks the company has written that have not been subtracted from the bank’s record of the company’s balance.

Answer 17

checks outstanding

Question 18

A check received and deposited by a company that is later determined by the bank to have nonsufficient funds. Also known as a “bad” check from a customer.

Answer 18

NSF check

Question 19

Company-issued debit cards or credit cards that allow authorized employees to make purchases on behalf of the company.

Answer 19

purchase cards

Question 20

Small amount of cash kept on hand to pay for minor purchases.

Answer 20

petty cash fund

Question 21

cash that is not available for current operations

Answer 21

restricted cash

Question 22

accidental errors in recording transactions or applying accounting rules

Answer 22

errors

Question 23

A set of procedures that ensure assets and accounting records are kept safe.

Answer 23

physical controls (pc)

Question 24

A set of procedures designed to prevent improper use of the company’s resources.

Answer 24

proper authorization (pc)

Question 25

Providing employees with appropriate guidance to ensure they have the knowledge necessary to carry out their job duties.

Answer 25

employee management (pc)

Question 26

A set of procedures specifically designed to ensure only authorized personnel are able to conduct e-commerce transactions.

Answer 26

e-commerce controls (pc)

Question 27

Management should periodically determine whether the amount of physical assets of the company (cash, supplies, inventory, and other property) agree with the accounting records.

Answer 27

reconciliations (dc)

Question 28

The actual performance of individuals or processes should be checked against their expected performance

Answer 28

performance reviews (dc)

Question 29

Hire an independent auditor to assess the internal control procedures to detect any deficiencies or fraudulent behavior of employees.

Answer 29

audits

Question 30

cash transactions involving revenues and expenses (ex: cash received from customers, cash paid for rent, utilities, supplies, and salaries)

Answer 30

operating activities

Question 31

Cash investments in long-term assets and investment securities (ex: purchase or sale of land, equipment, and buildings for cash)

Answer 31

investing activities

Question 32

Transactions designed to finance the business through borrowing and owner investment (ex: issue common stock or pay dividends; borrow or repay debt)

Answer 32

financing activities