Chapter 6 Key Terms and Definitions

Question 1

What is An Internal Control System?

Answer 1

a system that consist of policies and procedures managers use to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies.

Question 2

What is the Sarbane Oxley Act?

Answer 2

the act that requires the managers and auditors of companies whose stock is traded on an exchange to document and certify the system of internal controls.

Question 3

What are principles of internal controls?

Answer 3

they are to establish responsibilities, maintain adequate records, insure assets and bond key employees, separate recordkeeping from custody assests, divide responsibility for related transactions, apply technological contols, and perform regular and independent reviews.

Question 4

What is the Committee of sponsoring organization?

Answer 4

committe devoted to improving the quality of financial reporting through effective internal controls, consisting of five interrelated components, along with other mechanisms.

Question 5

What is liquidity?

Answer 5

a companies abilities to pay for its near term liablilites.

Question 6

What are liquid assets?

Answer 6

resources such as cash that can be easily converted into other assets or used to pay for good and services.

Question 7

What is cash?

Answer 7

cash includes currency, coins, and amounts on deposit in bank checking or savings accounts.

Question 8

What is a cash equivalent?

Answer 8

short term, investment assets that are readily convertible to a known cash amount or sufficiently close to their maturity date, usually within 90 days so that market value is not sensitive to interest rate changes.