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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Contra Accounts – 8 Workhorses Of Bookkeeping And Accounting

While the general public and business people are familiar with the general accounts that appear in the financial statements, many owners, executives, and other non-accounting personnel often ignore the lesser known accounts that are called Contra Accounts.

Contra Accounts are accounts that are matched or paired to a related account and subtracted from it. These bookkeeping accounts are included in the company’s chart of accounts. Often they might just be called ledger accounts or GL accounts.

If we see in a balance sheet:

Equipment ………………………………….0,000

Less: Accumulated depreciation……….. 20,000….. 100,000

Accumulated depreciation is the ‘contra account,’ and ‘Equipment,’ the related account.

Balance sheet contra accounts:

Accumulated depreciation……………………… contra-asset

Accumulated depletion………………………….. contra-asset

Drawing…………………………………………….. contra-capital

Allowance for doubtful accounts………………. contra-asset

Discount on bonds payable…………………….contra-liability

Income statement contra accounts:

Sales returns and allowances…………………. contra-revenue

Sales discounts…………………………………… contra-revenue

Purchase returns and allowances…………….. contra-cost

Purchase discounts………………………………. contra-cost

All accounts have what is known as a ‘Normal Balance.’ The normal balance of an account corresponds to the side in which the account is increased. To fully understand this concept, let’s have a refresher of the rules of accounting:

Rule of Accounting 1, for assets:

Increases in assets are recorded by debits to the asset accounts. Decreases in assets are recorded by credits to the assets accounts.

Rule of Accounting 2, for liabilities:

Increases in liabilities are recorded by credits to the liability accounts. Decreases in liabilities are recorded by debits to the liability accounts.

Rule of Accounting 3, for owner’s equity:

Increases in owner’s equity are recorded by credits to the owner’s equity accounts. Decreases in owner’s equity are recorded by debits to the owner’s equity accounts.

According to the above rules, assets are increased by debits; liabilities and owner’s equity by credits. It follows then that the normal balance of all assets is debit, and for liabilities and owner’s equity accounts the normal balance is credit.

To illustrate: Cash is an asset account; therefore, its normal balance is debit. Now, if for some reason the cash account shows a credit balance, then credit would be ‘abnormal.’ The explanation could be that we have overdrawn the account. Or perhaps it is a mistake such as a misposting.

Now, in the case of the contra accounts, they will have a normal balance that is the opposite of their related account. If we focus on the above example where we show Equipment 0,000. We can now say that the normal balance of Accumulated depreciation is credit (the opposite of the related account Equipment).

We are now prepared to give a full definition:

A contra account is an account that is matched or paired to a related account and subtracted from it. Therefore, its normal balance is the opposite of the related account.

The birth of Accounting

Accounting has a long history in China. According to historical records, as early Western Zhou era has specialized in the official accounting of income and expenditure of the office finances and taxes – the Secretary will, and the balance of property taken “in months-old will” (count it as a sporadic, the total cost-effective of the Council) method. Also appeared in the Western Han Dynasty called “account book” or “Book Books” books for registration of transactions. With officials in subsequent dynasties have managed land tax, property tax and income and expenditure. Song Guanting in processing claims or transfer land tax, to fabricate a “Four-inventory”, by “the old tube (beginning balance) + new income (current income) = fire (current expenditure) + is (end of period balance)” the balance formula checkout, material property changes in the current period changes in the balance sheet and results. This is the accounting discipline in the development of a major achievement. Late Ming and early Qing dynasties, handicraft industry and commerce with, there have been four column-based “Dragon Pulse,” which put all the accounts classified as “advance” (the income), “payment” (expenditures), “deposit” (the assets), “the” (the debt) in the category, the use of “progress – payment = deposit – the” balanced formula accounting, general ledger set up a “classified records”, and the preparation of “progress payment table “(ie income statement) and” save the table “(ie balance sheet), the implementation of dual calculate profit and loss, calculated in both the profit and loss table number should be equal, known as” co-Dragon, “to check all accounts positive error. After that, it had a “four-footed account” (also called “Heaven and accounts”), this method is: for each a registered both accounts “to account” and also registered “to account” to reflect the same accounts context. “Four-inventory”, “Dragon accounts” and “legs Account” shows the different historical periods of Chinese people’s characteristics, traditional Chinese books.

Modern accounting is a product of the commodity economy. 14,15 century, capitalist commodity currencies of the European rapid economic development, promote the development of accounting. The main signs: First, to use monetary measurement of the value of accounting; Second, extensive use of double-entry method to form the basic characteristics of modern accounting and development of the cornerstone. Since the 20th century, especially after World War II, capitalist production has been an unprecedented degree of social development of modern science and technology and economic management of the rapid development of science. By social, political, economic and technological environment, the traditional financial accounting continuously enriched and improved, so that the work of more standardized financial accounting, general and standardized. At the same time, the accounting discipline in the 20th century, 30 years on the basis of cost accounting, work closely with the modern management theory and practice needs, gradually formed to provide internal management information, management accounting systems, so that’s something from the traditional accounting After the account, afterwards, reimbursement, prior to the forecast and decision-making, something in the supervision and control, accounting and analysis afterwards. Production and development of management accounting, accounting history of a great change since then, the formation of a modern accounting financial accounting and management accounting are two branches. With the rapid development of modern production, raising the level of economic management, computer technology is widely used in accounting, accounting information so that the collection, classification, processing, feedback and other procedures out of the traditional manual operation, greatly increased the efficiency to achieve a fundamental change in accounting science.

From a different perspective of the accountant, can come to different understanding of the nature of accounting. These perceptions can be summarized as:

(1) accounting is to reflect and monitor the process of material production as a way to manage the economy.

(2) accounting is a collection, processing and distribution of economic information in information systems.

(3) The accounting treatment through the collection and use of economic information, to organize economic activity, control, regulation and guidance, and prompted a comparative analysis emphasizes the value of economic benefits to the activities of a targeted management activities.

Double-Entry Accounting and Preparing a Trial Balance Sheet

In today’s world of economic instability, the proper use of information is the key to attaining success. Businesses depend on information that is relevant and reliable for better decision making. Accounting is the system which reports information such as income, assets, expenses, liabilities, and equity to guarantee economic regulation within a company. For this reason, accounting if often called “the language of business” because it is used to aid a company in their decision making process. In this article I will discuss the appropriate methods for  double entry accounting and preparing a trail balance sheet.

In order to fully understand the concept of double-entry accounting you must first be able to understand how debts, credits, and ledger accounts affect the accounting process. A ledger account or (T-account) is used to understand the effects of one or more transactions on a balance sheet or income statement. These accounts are named due to their shape looking like a (T), with the account title on top, a left side, and a right side. The right side of the T-account is usually referred to as the credit side (CR) and subsequently  the left side is called the debit side(DR). Thus to enter an amount on the right side is to credit the account and to enter an amount on the left side is to debit the account. Depending on the nature of the account, determines whether the debit or credit is an increase or decrease. For example: an asset T-account contains a debit as an increase and a credit as an increase; however an equity T-account is the opposite, in which the debit is decrease and the credit is increased.

Now that we have a general understanding of the way debits and credits affect the accounting process we can now gain an understanding of the ways to utilize these transactions, also known as double-entry accounting. Double-entry accounting is the process in which each transaction is recorded in at least two accounts. This results in a debit to one or more accounts and a credit to one or more accounts. It also means that the total amount credited must be equal to the total amount debited for each transaction made. The fact that the sum of each debited amount must equal the sum of each credited amount allows for accountants to quickly check accuracy within a business’s records. There are four main double-entry account types, which are the asset account, liability account, income account, and expense account. The asset account involves property, or any item that retains economic value owned by a company or individual, which can also be converted into cash. The liability account deals with things that an individual or company owes, for example a credit card balance or mortgage loan. The income account involves money that is earned by the company or individual, while the expense account deals with money spent by the company or individual.

 

Since double-entry accounting requires the sum of all debit accounts to equal the sum of all credit accounts, a trial balance is required to verify correctness. The trial balance is a list of accounts and their balances at a point in time. When preparing a trial balance, three steps are needed:

You must list each account title and the amount accrued in the trial balance. If an account has a zero balance, just list it with a zero in the normal balance column.
Next you must calculate the total amount of the debit balance, as well as, the total credit balance.
Last you verify that the total debit balance is equal to the total credit balance.

If the total debit balance and total credit balance are not equal then there must be an error that needs correction. If the credits and debits do appear equal on the trial balance, it still does not guarantee that no errors were made. The main goal of the trial balance sheet is to report whether the account balances are reported in the appropriate debit or credit columns and to allow for future reference of financial statements.

Personal Finance Budgeting Basic and Budgeting Elements

 

Having sound Personal Finance Budgeting has many benefits. Budgeting properly will help you plan for and reach your financial goals and dreams as well as eliminate financial stress.

 

Financial budgeting is a necessary administrative task that if done well can help keep away debt anxiety, overwhelm as let you know exactly where you are so you know what you need to do to make your balance sheet look more positive.

 

If you don’t like budgeting you can always use personal finance software that enables you to make budgeting quick, fun and easy.

 

Figuring out how to budget your personal finances successfully is an essential and important tool to removing financial stress then.

 

Budgeting to tips to help you reach your goals.

 

1.            Round up every financial statement you have. This includes bank statements, investment accounts, recent utility bills and any information regarding a source of income or expense and record all of your areas of money coming in.

 

2.            Write down a list of all the expected expenses you plan on incurring over the course of a month. This includes a mortgage payment, car payments, auto insurance, groceries, utilities, entertainment, dry cleaning, auto insurance, retirement or college savings and everything you spend money on.

 

3.            Break expenses into two categories:

 

•             Fixed expenses are those that stay relatively the same each month and are required parts of your way of living. They included expenses such as your mortgage or rent, car payments, cable and/or internet service, trash pickup, credit card payments and so on.

 

•             Variable expenses are the type that will change from month to month and include items such as groceries, gasoline, entertainment, eating out and gifts to name a few.

 

4.            Total your monthly income and monthly expenses. If your end result shows more income than expenses you are off to a good start. This means you can prioritize this excess to areas of your budget such as retirement savings or paying more on credit cards to eliminate that debt faster. Also, make necessary adjustments to expenses.

 

5.            Review your budget monthly. It is important to review your budget on a regular basis to make sure you are staying on track. After the first month take a minute to sit down and compare the actual expenses versus what you had created in the budget. This will show you where you did well and where you may need to improve.

 

Of course if you use personal finance software you will find this task as simple as entering in the figure into a pre made spreadsheet with all the categories listed for you. This eliminates thinking on your behalf and will save you heaps of time.

 

Using software, especially for someone who doesn’t have much knowledge about intricacies of accounting and finance, will be beneficial for you in the following ways:

 

• Speed: All you have to do is to enter the data about your income and expenditure and it will sort out your expenses and create plans for your future personal finance. Good software will even calculate your taxes.

 

• Bill payments: Some programs are integrated with the internet and your bank so that it will pay your bills automatically. This is the best way to pay your bills on time and avoid late fees or discontinuation of services.

 

Remember a stable financial future starts with good personal finance budgeting. If you are like most people who hate the thought of being trapped within a budget get yourself a good financial software program that will make the exercise more enjoyable.

 

 

 

Discover more about personal finance budgeting here.

How do you make your life better? get more control? protect your family? Create a personal financial plan. Start here!