Page 359 - Accounting Principles (A Business Perspective)

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Payee The party to whom a check is made payable.
Petty cash fund A nominal sum of money established as a separate fund from which minor cash
disbursements for valid business purposes are made. The cash in the fund plus the vouchers covering
disbursements should always equal the balance at which the fund was established and at which it is carried in
the Petty Cash account.
Petty cash voucher A document or form that shows the amount of, and reason for, a petty cash
disbursement.
Purchase order A document sent from the purchasing department to a supplier requesting that
merchandise or other items be shipped to the purchaser.
Purchase requisition A written request from an employee inside the company to the purchasing
department to purchase certain items.
Quick ratio The ratio of quick assets (cash, marketable securities, and net receivables) to current liabilities.
The quick ratio measures a company's short-term debt-paying ability.
Receiving report A document prepared by the receiving department showing the descriptions and
quantities of all items received from a supplier in a particular shipment.
Remittance advice Informs the payee why the drawer (or maker) of the check is making this payment.
Segregation of duties Having one employee responsible for safeguarding an asset and a second employee
responsible for maintaining the accounting records for that asset.
Service charges Charges assessed by the bank on the depositor to cover the cost of handling the checking
account.
Signature card Provides the signatures of persons authorized to sign checks drawn on an account.
Transfer bank accounts Bank accounts set up so that local banks automatically transfer to a central bank
(by wire or written bank draft) all amounts on deposit in excess of a stated amount.
Wire transfer of funds Interbank transfer of funds by telephone.
Self-test
True-false
Indicate whether each of the following statements is true or false.
Cash includes coin, currency, postdated checks, money orders, and money on deposit with banks.

To effectively manage its cash, a company should make certain that enough cash is available to pay bills as they
come due.
The cash balance on the bank statement is usually equal to the cash balance in the depositor's books.
A deposit in transit requires an entry in the depositor's books after the bank reconciliation is prepared.
For control purposes, a company should issue checks for every payment, regardless of its amount.
Multiple-choice
Select the best answer for each of the following questions.
The objectives of the internal control structure of a company include all of the following except:
a. Compliance with company policies and federal law.

b. Protection of its assets.
c. Increase in accuracy and reliability of accounting data.
d. Guarantee of a certain level of profit.
e. Evaluation of personnel performance to promote efficiency of operations.
Use the following information to answer the next three questions:
Balance per bank statement USD 1,951.20
Balance per ledger 1,869.60

Deposits in transit 271.20

Accounting Principles: A Business Perspective 360 A Global Text