Definition of auditing & Dissimilarity connecting – Auditing and Accounting

Introduction: Generally we know that a financial statement means the balance sheet and profit & loss accounts. The financial statement provide the actual financial position or financial information in an organization or business,

 

The opinion on financial information is articulated after examination and verify of books of Accounts documents, records & voucher and go on to point out the true and fair financial position or result of operations in an organization. For complete all this prosecutions the owners of the business would appointed a person to check the accounts documents with determining the accuracy and reliability accounting statement & reports. Those appointed person who completely the accounts examined and tender a report to the authority as a rule the person is a auditor, and his profession of accounts examination, verify and obtainable  report all this task typically we called auditing,

 

Author note: A lot of analyst and authors has illustrated about the “definitions of auditing” although they elucidated very well but at times it’s actually complex to recognize for the learners clearly. I had a dreadful experience when I was a learner. Now, as a financial analyst I felt to write this matter in a very and easy way so that the learners/professionals don’t have to go door to door to understand this. Below is my definition of auditing and others importance matters that related with auditing. I hope a student, learner & auditors will be helpful from this,

 

 

Definition of auditing: audit is a process of examining and verifying a company’s or organizations financial records and supporting documents, this audit process is a step by step systematic appraisal of a company’s operating systems. that properly drawn up so as to exhibit a true and fair view of the financial state of affairs of the business financial period.

 

 

“Dissimilarity connecting Auditing and Accounting “

Most of the public confuse about the auditing and accounting, the confusion arise due to the most auditing is usually concern with accounting information and many auditors have considerable expertise in accounting matters. Basically the general public confusion are increased by the designation “certified public accountant (CPA) or chartered accountant (CA) but the designation holder perform audit,

 

Before make discussion about auditing, I think it is necessary to explained “Dissimilarity connecting Auditing and Accounting “it will helpful for leaner to clear understand about the auditing process and accounting method, below I have presented “Dissimilarity connecting Auditing and Accounting “

 

01. Accounting: Accountancy is to record the contract in the book of accounts, removal of trial balance, preparation of Trading and profit and loss account and balance sheet etc.

01. Auditing: Auditing is the examination of books of account and scrutiny the financial statement for the purpose of finding out the true and fair position and results of action of a concern

02. Accounting: The auditor is asked to write the books of accounts, remove an agreed trial balance and profit and loss account and Balance sheet; he would be doing the work of an accountant and not the work of an auditor.  Grounding of account is not the part of auditing.

02. Auditing: An auditor, using his assigning  power, needs to check methodically, whether the Profit and Loss account  and the Balance Sheet have been properly haggard up and revel the ‘true and fair view’ of the state of relationships and results of operation of the concern and report it to the gathering attracted.

03. Accounting: Auditing without the prior continuation of accounts is not possible.

03. Auditing: The accountant finishes his work, the auditor starts his work.

 

04. Accounting: all the Accountants are not auditor.

04. Auditing: the all auditors are accountant

 

05. Accounting: An accounting has to record the transactions in the books of accounts.

05. Auditing: An auditor has to check and verify such transactions and accounts and send a report to the person who appointed him.

 

 

Conclusion: I further of considerate accounting – the auditor must process capability in the gathering and the explanation of audit evidence. this proficiency that differentiates auditors from accountants formative the proper audit procedures deciding the number and types of items to test and evaluating the results are problems unique to the auditor.

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Accounting & balance sheet

I would like to start speaking about this topic with defining what accounting is. So accounting is keeping financial records, recording income & expenditure, valuing assets& liabilities, eleberation of budjets & so on. We can devide accounting into two large groups.

Accounting:

Financial accounting

preparing financial statements of various kinds

- financial statements

- tax reterns                                             -

is used for:

Managerial accounting

preparing financial information,

necessary for the company itself;

- controlling

- marketing & management

- pricing

- negotiations

- analyzing the flows of capital

But also there are a lot of other kinds of accounting, such as:

Cost accounting – working out the unit cost of products, including materials, labour & all othe expenses.

Tax accounting – calculating an individual’s or a company’s liability for tax.

“Creative accounting” (or “window dressing”) – using all available accounting procedures & tricks to disguise the true financial position of a company.

Also at the begining of the topic I would like to stress, that we shouldn’t muddle accounting with bookkeeping. Bookkeeping is just writing down (recording) all the details of transactions (debits & credits). Bookkeepers have to record every purchase and sale that a business makes, in the order that they take place, in journals. At a later date, these temporary records are entered in or posted to the relevant account book or ledger. At the end of an accounting period, all the relevant totals are transferred to the profit and loss account. Double-entry bookkeeping records the dual effect of every transaction – a value both receives and parted with. Payments made or debits are entered of the left-hand (debtors) side of an account, and payments received or credits on the right-hand side. Bookkeepers periodically do a trial balance to test whether both sides of an account book match.

So as you see it’s not the same as accounting, actually, I would define bookkeeping as a necessary part (one of the functions) of accounting. Because accountants do record cash flows, & the value of assets & liabilities, & they calculate profits & losses, & so on. But it’s not just writing down numbers. They are in the business of supplying people with information (e. g. shareholders). Even managers always need the help of accountants. They need financial statements & budgets, & cash-flow projection, & so on, to measure the success of what they’ve done, & to make decisions about allocating resources for future projects. They try to find a way to allocate all the overheads to different products. Also accountants try to make a company’s financial situation look as good as possible in the balance sheet (I’m talking about “creative accounting”) & reduce tax bill, despite of the fact, that it’s not legal. So it’s not a full list of everyday duties of any accountant.

One of the function of accounting is also valuing assets, which are things of value or earning power to a firm. Assets can include cash, receivables, bank deposits, and trade investments: investments in other companies. Such assets are called current assets. Assets including land, plant, buildings, and furniture, are called fixed assets. Assets such as plant and equipment that over time wear out or become outdated are said to depreciate. A charge must be made for this depreciation or amortization in calculating a business’s profitability: the assets are depreciated or amortized by an amount each year. Also there are intangible assets, which may include such things as patents owned by the company, and goodwill, the value of the company as a functioning business or going concern with a client base, experienced management, and other benefits that a start-up may not have.

All the money that a company will have to pay to someone else in the future, including taxes, debts, and interest and mortgage payments is calledliabilities. Long-term debts are long-term liabilities. The ratio of a firm’s debt to equity is its gearing or leverage; a firm with a high proportion of debt in relation to equity is highly geared or highly leveraged. Short-term debts and debts to suppliers are among its current liabilities.

& here I would also like to define two more concepts (they seem to be key definitions in topic accounting). I’m talking about debtors & creditors. So

-                     debtors (or account receivable) – are the sums of money owed by customers for goods or services purchased on credit

-                     creditors (or accounts payable) – the sums of money owed to suppliers for purchases made on credit

As it has been already mentioned there are different kinds of accounting, different functions of accountants, various possible ways of recording debits & credits, valuing assets & liabilities, calculating profits & losses, etc. But there are generally accepted “accounting principles” that any accountants must follow in order to present “a true & fair view” of a company’s finance. So here are some of them:

The matching principle – the revenues generated in an accounting period are identified with related costs whenever they were incurred. The objectivity principle – all data recorded should be verifiable & free from bias. The consistency principle – the same methods (of inventory valuation, depreciation, etc.) must be used from one period to the next. The full-disclosure principle – financial reporting must include all significant information. The principle of conservatism (or prudence) – where alternative accounting methods are possible, one understates rather than overstates profits. The separate-entity or accounting entity assumption – an enterprise is an accounting unit separate from its owners, creditors, etc. The continuity or going-concern assumption – the business will continue indefinitely into the future. The unit-of-measure assumption – all transactions & other items to be accounted for must be in a single, supposedly stable monetary unit. The time-period or accounting period assumption – financial data must be reported for particular (short) periods, which makes accrual & dererral necessary.

10.  The historical cost principle – the initial price paid for the asquisition of assets is the one that is recorded in accounts.

11.  The revenue or realization principle – revenue is realized at the moment when goods are sold (or change hands) or when services are rendered.

In accordance with the principle of double-entry bookkeeping, the basic accounting equation is Assets = Liabilities + Owners’ (Stockholders’) Equity. This can be rewritten as Assets – Liabilities = Owners’ Equity or Net Assets. This includes share capital (money received from the  issue of shares), share premium or paid-in surplus (any money realized by selling shares at above their nominal value), and the company’s reserves, including the year’s retained profits. Stockholders’ or shareholders’ equity or net assets are generally less than a company’s market capitalization, because net assets do not record items such as goodwill.

Also there are various standart ratio measures which are simple enough to calculate:

The liquidity ratio = liquid assets/current liabilities The current ratio = current assets/current liabilities Return on capital employed = net profit/capital employed Profit on sales = net profit/turnover Debtors ratio = debtors/sales Creditors ratio = creditors/purchases Debt/equity ratio = long-term loans/shareholders’ funds

These ratios are also often use in simulation or case studies, because they allow students to make an initial assesment of a company’s performance & situation.

Speaking about accounting we can’t but giving difinitions for the following words:

-                     turnover – the amount of business done by a company over a year

-                     depreciation – the reduction in value of a fixed asset during the years it is in use (charged against profits)

-                     inventory – the value of raw materials, work in progress, and finished products stored ready for sale

-                     overheads – the various expenses of operating a business that cannot be charged to any one product, process or department

Company law specifies that shareholders must be given certain financial information (as it was said at the very beginning). Companies generally include three financial statements in their annual reports:

The profit and loss account (or income statement) – shows revenue and expenditure. The balance sheet – shows a company’s financial situation on a particular date, generally the last day of the financial year. The third financial statement has various names, including the source and application of funds statements, and the statement of changes in financial position. This shows the flow of cash in and out of the business between balance sheet dates. Sources of funds include trading profits, depreciation provisions, sales of assets, borrowing, and the issuing of shares. Application of funds include purchases of fixed of financial assets, payment of dividends, repayment of loans, and – in a bad year – trading losses.

I would pay special attention to the balance sheet, because the biggest part of the accountant’s work is concerned with this document.

So the balance sheet is a document that shows the totals of money received and money paid out by a company and the difference between them. The balance sheet includes two parts:

assets liabilities and share capital.

Both parts should always be balanced.

The item current assets includes cash, marketable securities, accounts receivable and stock-in-trade. Thus these assets appear to be working assets. Current assets are the assets which a company can convert quickly into cash, usually stock and accounts receivable falling due within one year. Cash includes bills, petty cash fund and money on deposit.

Marketable securities are a short-term investment of surplus or temporary free assets. Normally these assets are allocated into commercial securities or federal bonds. As securities can be required at short notice they are to be easily realized and be subject to price fluctuations as little as possible. The balance sheet shows their nominal cost, their market value is given in brackets.

Account receivables are amounts owed to a business by suppliers of goods and services. Usually customers are allowed a 30, 60 or 90 days period of time within which they are to effect a payment. However. Some customers are not able to pay owing either to financial difficulties or contingency. Hence, the amount is to be reduced for the reserve allowance for bad debt.

Stock-in-trade includes raw materials to be used for production and semi-finished goods. The stock-in-trade value is defined either by its cost or cost market value. The preference is given to a lower one.

Capital assets include property, premises, plant and machinery, and equipment. They are not meant for sale but for the goods production, storage and transportation. This category comprises land, buildings, machinery, equipment, furniture and vehicles. Thus, net capital assets reflect the volume of investment made into property, plant and machinery, and equipment. Capital assets lose their value with age and use. The ral cost of capital assets may gradually lose their value as a result of obsolescence of machinery. New modern technologies make the old equipment obsolescent. Thus, depreciation is a gradual loss in the value of something, such as a vehicle, a machine or any asset that wears out with use and age. The land cannot be depreciated; its value stays unchanged year after year.

Prepayments and deferred charges include, for instance, insurance against fire prepayment or lease prepayments etc.

Deferred charges are similar to prepayments. For instance, a manufacturer allocates money into research work, positive results of which and profit will be seen many years later. So costs are to be discounted within the years to follow.

Intangibles like patents, goodwill and trademarks are not physical substances and are differently evaluated by various companies or may not be evaluated at all.

GET THE FULL VIDEO HERE: goldsilver.com Welcome to the 7th episode in our 10 part series.

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Tips to Teaching Personal Finance

As the economic slowdown has reached more people the movement of financial responsibility is sweeping across the nation. Teaching personal finance and raising money smart kids is now more important than ever.

James Truslow Adams, the man that coined the phrase “American Dream” in his book Epic of America, is quoted: “The American Dream is that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement.”

Teaching personal finance and raising money smart kids give our children the ability to recognize and capitalize on opportunities which will help them in pursuit of their own personal American Dream. This “Dream” can be achieved with practical financial knowledge and through teaching personal finance our children’s future will be much brighter.

Our children face an almost certain future of higher taxes, less services, and the elimination of the current social security & Medicare system. Read the reports from the Government Accountability Office and you will find that the SSI system will be bankrupt in 2037.

Although it is true that our children will face bigger economic challenges than we had to go through; however by teaching personal finance and raising money smart kids they will be able to achieve their own personal American Dream.

What is available for us to begin teaching personal finance to our kids? Schools’ With all the requirements placed on testing (No Child Left Behind) and the disturbing fact that most schools aren’t given the budget they need – this probably is not where most of our children will receive their financial training.

Parents – Most youth do rely on their parents as the primary source of their money knowledge; however, as the statistics clearly show, most parents do not possess the knowledge necessary to effectively teach their kids about money. They want money smart kids but most were not trained on how to begin teaching personal finance to their children.

There are financial literacy courses that are designed to help you raise money smart kids. Recent home-study financial literacy courses are now on the market and are designed to educate & entertain youth while instilling practical financial lessons. Some even have partnered with sport stars & celebrities to create a powerful draw so your children want check out what their favorite celebrity is doing and picking up money lessons along the way.

There have been several courses that are specifically designed to help parents to begin teaching personal finance. These courses walk parents through the basics of raising money smart kids and often the parents learn as much as the children.

Nonprofits – There are many nonprofits doing great work helping to spread the message of financial literacy and training our youth with practical money skills. Fortunately, financial literacy grant money and corporate sponsorship are empowering many nonprofits with the ability start teaching personal finance so the next generation the pickup the practical financial lessons we “learned the hard way”.

Private Companies – There are companies that thrive in every type of economic environment and in an environment where a lot of people are going through tough circumstances, financial education companies stand to profit while helping people improve their financial situation.

Right now the financial literacy movement is expanding faster than ever at the grassroots level. People want to begin teaching personal finance to their children because they want money smart kids. We commend you on reading this article and looking for ways to empower youth with the financial literacy skills they need in the ‘real world’

Through collaboration with parents, nonprofits, schools, teachers and business leaders – we can begin teaching personal finance and ensure we are raising money smart kids. Doing so will help these youth get the skills they need to live the American Dream.

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This view is from the auto lanes looking southwest (the Ponca City Savings & Loan building can be see in the background).

Cut Interest Rates and Save Lot of Money With Auto Loan Refinancing

If the existing auto loan is problematic with high payments, refinance auto loan can be a way out. In such cases, advanced auto loan can be availed of. Refinancing of an existing auto loan is paying the remaining balance of the loan and avail a new loan from the same lender or another lender.

Auto loan refinancing should be according to one’s specifications. When given these specifications, advanced auto loan helps to locate the deal, which has the expertise in arranging auto loan according to specifications. Therefore advanced auto loan helps to refinance with a low rate of interest.

Fixed rate of interest is for people who want to play it safe and flexible rate of interest that change based on the changes in the market is suited for those who can undertake risks. The lender of the new auto loan fixes the interest rate by taking into account some of the factors like financing amount, the rates that prevail in the market, the credit score and the financial status. The lender offers competitive rates to all bad credit scorers. Even in refinancing auto loan, there are two types, secured auto loan and unsecured auto loan. The amount saved from refinancing can be utilized to buy accessories for the automobile. While availing refinance, the borrower has to provide certain details of the old loan, pay the entire pending installments of old auto loan and then avail the new loan of refinance at a lower interest rate.

Benefits of auto refinancing are that it carries a lower interest rate than the existing one, reduces the monthly outgoing of money and saves a lot of money. Usually, bad credit scorers find it difficult to get auto loan. But even for such bad credit scorers, refinance auto loan is available at competitive rates and can thus improve their credit score by making timely repayments of loan. While availing a refinance auto loan, the borrower should bear in mind the following points.

The lender must be reputable, extensive comparison with other offers should be made, the trend prevailing in the market should be investigated, check whether there are any hidden costs, should have favorable terms and conditions and to avoid undesirable condition and each clause of the loan deal must be read carefully. Tools like auto calculator help to find out how much money is saved through refinancing. The cheapest and the easiest way of availing refinancing auto loan is through online because it saves time, money and offers a wide variety of comparisons.

Therefore, it is prudent to say that refinance auto loan not only provides financial support to bad credit scorers but also improves the credit score, if timely repayments are made.

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The Importance of Learning about Personal Finance

There are a number of different reasons as to why a person should learn about personal finance, but it is perhaps understandable that most people can not see these reasons for themselves. Personal finance is a difficult topic to learn about and for that reason a person just naturally tends to shy away from it, making excuses in an attempt to avoid having to learn about it. Well, personal finance is extremely important and here are some reasons why.

Money Flow

If you understand personal finance, then you will understand your money flow a lot better. There are a number of people that muddle through life paying their bills and their mortgage payment with the money that they have and then spending the rest of it or maybe letting it sit in their bank account. These are people that have no idea how personal finance works, so even if they end up making the right decisions they are doing it through luck.

While there is nothing inherently wrong with this particular approach, don’t you think that you would feel much better if you knew exactly what was going on with your money flow? The old saying is that knowledge is power and if you know about your money flow, you arguably have the most important individual power that exists in the world today.

Uncertainty and Fear

Human beings as a species have an irrational fear of uncertainty. In this respect, we are no different from any of the other mammalian species walking the planet, because all of them have been conditioned through thousands of generations of being eaten and killed to be afraid of what they don’t know. Uncertainty and fear therefore go hand in hand and when they do this in relation to something as important to your basic survival as money, the paralyzing effect that fear can have on you is something that is not even pleasant to think about.

Compare this situation however to a situation where somebody knows about how their money flow works and understands their entire personal finance situation. This person is not a person that is likely to be afraid, since there is no uncertainty involved with their financial situation. It is a lot easier to be afraid when you have no idea where your money is coming from and where it is going.

Utilization

If you truly understand personal finance, then another thing that you definitely should understand is utilization. A person that does not understand or appreciate personal finance is a person that is unlikely to save a lot of money, instead spending whatever they happen to have left after monthly expenses on entertainment and impulse purchasing. While there is nothing wrong with being a consumer on this level, it is something that might hamper you later on in life when your income begins to dry up and you realize you have no prospects on the horizon.

If the person does not spend a lot and does not understand personal finance, the same thing could happen. While the money in your bank account is available to you instead of having been spent on something impulsive, it is still not being utilized to its fullest extent.

Only a person with an understanding of personal finance would know that money being saved should at the very minimum be placed in a high interest savings account and later on should also probably be invested in things that yield a much higher interest rate. This difference in understanding and ultimately in utilization comes specifically from an understanding in personal finance.