chapter six notes

Question 1

cash

Answer 1

the most easily manipulated asset->it disappears easily

Question 2

cash equivalents must be

Answer 2

• readily convertible

- have an original maturity of 3 months or less

Question 3

marketable securities

Answer 3

short term investments that are not due within 3 months

Question 4

examples of cash equivalents

Answer 4

treasury bill, commercial paper, money market fund, cd

Question 5

tools of effective cash management include:

Answer 5

• cash controls over receipts and disbursements
• preparation of bank reconciliations
• use of petty cash fund

Question 6

control of cash receipts

Answer 6

• record when received
• deposit receipts intact
• separation of duties

Question 7

separation of duties

Answer 7

different employees for each of the following: recording, custody, and authorization

Question 8

control of cash disbursements

Answer 8

• all major disbursements made by check
• pay only small, miscellaneous expenditures from petty cash
• prepare bank reconciliation

Question 9

record everything for bank reconciliation on ___ ____

Answer 9

book side

Question 10

credit memo

Answer 10

bank increases your cash account

Question 11

debit memo

Answer 11

bank reduces your cash account

Question 12

cash in the bank eye’s is technically a _____

Answer 12

liability, they owe you that money back

Question 13

deposits in transit

Answer 13

checks not processed by the bank yet (usually the next day)

Question 14

outstanding checks

Answer 14

checks not deposited by clients

Question 15

notes collected

Answer 15

payments sent directly to the bank

Question 16

NSF checks

Answer 16

“bad check”, clients didn’t have the money

Question 17

overdraft charge

Answer 17

fee for the bank’s trouble from bad check

Question 18

service charge

Answer 18

fee for services from the bank

Question 19

internal control is necessary to ensure:

Answer 19

• the safeguarding of a company’s assets
• the reliability of its accounting records
• the accomplishment of its overall objectives

Question 20

control environment

Answer 20

management’s competence and operating style, personal policies, and influence by the board of directors

Question 21

accounting system

Answer 21

methods and records used to report financial information

Question 22

proper authorization

Answer 22

authority and responsibility for approval of purchases/writing checks

Question 23

segregation of duties

Answer 23

separate physical custody from the accounting for assets

Question 24

independent verification

Answer 24

one individual or department acts as a check on the work of another

Question 25

safegaurding assets and records

Answer 25

protect assets and accounting records from loss, theft, unauthorized use

Question 26

independent review and appraisal

Answer 26

periodic review of the accounting system and the people operating it (external audit)

Question 27

the design and use of business documents

Answer 27

capture all relevant information about a transaction and assist in proper recording and classification