You can find terms and definitions, commonly used in the cash and checking account areas, in here. Cash Flow Statements-related terms and definitions are also included on this page.

  • Cash – Resources that consist of coins, currency, checks, money orders, and money on hand or on deposit in a bank or similar depository.
  • Cash equivalents – Short-term, highly liquid investments that can be converted to a specific amount of cash.
  • Check – A written order signed by a bank depositor, directing the bank to pay a specified sum of money to a designated recipient.
  • Bank statement – A monthly statement from the bank that shows the depositor’s bank transactions and balances.
  • Bank reconciliation – The process of comparing the bank’s balance of an account with the company’s balance and explaining any differences to make them agree.
  • Bank service charge – A fee charged by a bank for the use of its services.
  • Deposits in transit – Deposits recorded by the depositor but not yet been recorded by the bank.
  • Electronic funds transfer (EFT) – A disbursement system that uses wire, telephone, or computers to transfer funds from one location to another.
  • Bonding – Obtaining insurance protection against misappropriation of assets by employees.
  • Compensating balances – Minimum cash balances required by a bank in support of bank loans.
  • Fraud – A dishonest act by an employee that results in personal benefit to the employee at a cost to the employer.
  • Fraud triangle – The three factors that contribute to fraudulent activity by employees: opportunity, financial pressure, and rationalization.

Cash Flow Statement Terms and Definitions

  • Statement of cash flows – A basic financial statement that provides information about the cash receipts, cash payments, and net change in cash during a period, resulting from operating, investing, and financing activities.
  • Direct method – A method of determining net cash provided by operating activities by adjusting each item in the income statement from the accrual basis to the cash basis and which shows operating cash recipts and payments.
  • Indirect method – A method of preparing a statement of cash flows in which net income is adjusted for items that do not affect cash, to determine net cash provided by operating activities..
  • Operating activities – Cash flow activities that include the cash effects of transactions that create revenues and expenses and thus enter into the determination of net income.
  • Financing activities – Cash flow activities that include (a) obtaining cash from issuing debt and repaying the amounts borrowed and (b) obtaining cash from stockholders, repurchasing shares, and paying dividends.
  • Investing activities – Cash flow activities that include (a) purchasing and disposing of investments and property, plant, and equipment using cash and (b) lending money and collecting the loans.
  • Free cash flow – Cash provided by operating activities adjusted for capital expenditures and dividends paid