Cash flow management The planning of a company’s receipts and payments of cash.

Check A written order to a bank to pay the amount specified from funds on deposit.

Check authorization A form prepared by the accounting department after it has compared the receiving report with the purchase order and the invoice. It permits the issuance of a check to pay the invoice.

Control activities Policies and procedures established by management to ensure that the objectives of internal control are met.

Control environment "The overall attitude, awareness, and actions of management, as reflected in the company’s philosophy and operating style, organizational structure, method of assigning authority and responsibility, and personnel policies and practices."






Financing period "The amount of time from the purchase of inventory until it is sold and payment is collected, less the amount of time creditors allow for payment of the inventory. Also called the cash gap."

FOB destination A shipping term that means that the seller bears transportation costs to the place of delivery.

FOB shipping point A shipping term that means that the buyer bears transportation costs from the point of origin.

Freight in The transportation cost of receiving merchandise. Also called transportation in.

Freight Out Expense "The account that accumulates transportation charges on merchandise sold, which are shown as a selling expense. Also called Delivery Expense."






Goods available for sale The sum of beginning inventory and the net cost of purchases during the period; the total goods available for sale to customers during an accounting period.






Information and communication The accounting system established by management and the communication of responsibilities with regard to the accounting system.

Internal control "All the policies and procedures a company uses to ensure the reliability of financial reporting, compliance with laws and regulations, and the effectiveness and efficiency of operations."

Invoice "A form sent to the purchaser by the vendor describing the goods delivered, the quantity, price, and terms of payment."






Merchandise inventory The goods on hand at any one time that are available for sale to customers.

Merchandising business A business that earns income by buying and selling goods.

Monitoring Management’s regular assessment of the quality of internal control.






Net cost of purchases Net purchases plus any freight charges on the purchases.

Net purchases "Total purchases less any deductions, such as purchases returns and allowances and purchases discounts."






Operating budget Management’s operating plans as reflected by detailed listings of projected selling expenses and general and administrative expenses.

Operating cycle "A series of transactions that includes purchases of merchandise inventory for cash or on credit, payment for purchases made on credit, sales of merchandise inventory for cash or on credit, and collection of cash from the sales."






Periodic inventory system A system for determining inventory on hand by taking a physical count at the end of an accounting period.

Perpetual inventory system "A system for determining inventory on hand by keeping continuous records of the quantity and, usually, the cost of individual items as they are bought and sold."

Physical inventory An actual count of all merchandise on hand.

Profitability management The process of achieving a satisfactory gross margin and maintaining acceptable levels of operating expenses.

Purchase order "A form prepared by a company’s purchasing department and sent to a vendor describing the items ordered; the expected price, terms, and shipping date; and other shipping instructions."

Purchase requisition "A formal written request for a purchase, prepared by the requesting department in an organization and sent to the purchasing department."

Purchases A temporary account used under the periodic inventory system to accumulate the total cost of merchandise purchased for resale during an accounting period.

Purchases discounts Discounts taken for prompt payment for merchandise purchased for resale; the Purchases Discounts account is a contra-purchases account.

Purchases Returns and Allowances "A contra-purchases account used under the periodic inventory system to accumulate cash refunds, credits on account, and other allowances made by suppliers."






Receiving report A form prepared by the receiving department of a company describing the quantity and condition of goods received.

Risk assessment The identification of areas in which risks of loss of assets or inaccuracies in the accounting records are high.






Sales discount A discount given to a buyer for early payment of a sale made on credit; the Sales Discounts account is a contra-revenue account.

Sales Returns and Allowances "A contra-revenue account used to accumulate cash refunds, credits on account, and other allowances made to customers who have received defective or otherwise unsatisfactory products."






Trade discount A deduction (usually 30 percent or more) off a list or catalogue price that is not recorded in the accounting records.