General Accounting Information and Recreational Site

Bank Reconciliation

noreply@blogger.com (vamert) — Fri, 17 May 2013 03:47:33 PDT

Is actually bank reconciliation prepared by an account executive viewed as a control within the financial preparation approach?

The response to this query is quite ambiguous. As you will discover threat that Account Executive set aside one particular balancing figure, so as to tally the complete reconciling items. Therefore, preparing of bank reconciliation itself will not type aspect with the control. On the other hand, if you will discover a superior assessment the bank reconciliation prepared, the above-mentioned threats is often mitigated.

Therefore, examining bank reconciliation is viewed as a control.

Tax Refund

noreply@blogger.com (vamert) — Fri, 03 May 2013 19:52:56 PDT

What will be the accounting entries for tax refund?

Debitt Provision for Taxation
Credit Taxation Expense (P/L)
Getting recognition of tax refund in Profit & Loss statement (upon finalization of YA)

Debit Cash
Credit Provision for Taxation (B/S)
Getting recognition of tax refund receipt

As observed above, a tax refund is offset against the taxation recorded in P/L ( as evident from crediting taxation). Be observed that, a tax refund is prospective showing that the tax calculation is at its final stage ( more or less finalized). As a result, any excess provision based on the particular Year of Assessment should be re-assessed / reversed out appropriately.

General Provision on Doubtful Debt

noreply@blogger.com (vamert) — Sat, 27 Apr 2013 16:06:10 PDT

In some situations, general provision for doubtful debt is offered for accoridng for the age with the outstanding debt. Even so, General provision for doubtful receivable is no longer permitted subsequent for the implementation of IAS 39.

IAS 39 states that:

“A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.”

As such, impairment loss really should be recognized when, subsequent for the initial recognition with the receivable, an event has occurred which causes the receivable to become impaired. General provision offered in accordance with age with the outstanding is no longer permitted. The financial asset really should be impaired if, and only if, there is certainly objective proof of impairment.

What will be the accounting entries for fixed asset acquisition:

noreply@blogger.com (vamert) — Mon, 15 Apr 2013 04:37:12 PDT

Debit    Fixed Asset
Credit   Cash / Creditors
     Being fixed asset purchased

What in the event the fixed asset acquisition is financed by means of Hire Purchase Employee, what will be the entries in that case:

Debit    Fixed Asset
Credit   Creditors

Debit Creditors
Credit       Hire Purchase Liability

Implication of Internal Control- Effect of Credit Crunch on New Clients

noreply@blogger.com (vamert) — Wed, 10 Apr 2013 04:32:50 PDT

Within the existing environment exactly where credit crunch influences are predominant, you will discover escalating credit dangers with the Firm. Together with the enthusiasm to get new clients, the strict credit threat assessments ( of new clients) really should not be compromised.

The company ( that happen to be straight and severely impacted by the credit crunch) really should examine creditworthiness of new clients cautiously. Comprehensive facts necessary to become obtained, as an illustration:

Financial benefits with the Firm
Inquiries with market place peers/ industrial individual
Shareholders' fund with the Firm
Causes for buying in the entity

The business can go over together with the new client around the explanation to buy from them, because the supplies client could have already been discontinued from other supplies, resulting from credit threat concern.

Therefore, a comprehensive understanding and suitable approval approach must be undertaken to stop doubtful debt concern.

Stock Take Process 4

noreply@blogger.com (vamert) — Fri, 05 Apr 2013 19:23:11 PDT

Appropriate segregation of duties ought to exist through stocktake.

Being an auditor, we will need to observe that the stock take group consist of:

Counter (Warehouse personnel)
Checker (Staffs from department besides warehouse division

Warehouse personnels will be the those who has direct access for the Company's stocks. Why really should the warehouse personnel (counter) accompanied using a checker through stock take? That is to stop prospective fraud case and observe the standard inventory management procedures with the client. Warehouse personnel will be the those who has day-to-day access for the warehouse. Assuming, they steal one particular and reported a single stock lesser through stock take, no one is not going to recognize the fraud case, unless the inventory method capture the each day movement.

To illustrate with an instance. Corporation XYZ will not has right inventory system that retain track on goods in and goods issued. The Corporation is not going to know the precise quantity with the inventory item, till the physical stock take, which can be performed on a month-to-month basis. The employee could have just steal one particular item and letting persons recognize.

Therefore, stock take group ought to consist of no less than one particular individuals from other division to verify that the quantity counted and reported is as what have already been counted physically.

Introduction to Auditing

noreply@blogger.com (vamert) — Sun, 31 Mar 2013 22:19:06 PDT

What exactly is auditing? Additional especially, what exactly is financial auditing?

In major corporate entities firms, small-to-meidum business, sole proprietor,and so forth, the entities are, expected by law, to maintain accounting records with the enterprise on a timely basis. Therefore, the entities employ accountants to maintain the accounting records, that reflect the day-to-day transaction with the Corporation, at the same time as financial position with the Corporation.

The financial benefits are summarized and presented in what we referred to as: Statutory Account ( fianncial Statements/ Annual report for listed Corporation). How do we assure that the financial benefits presented are precise?

The auditors, independent party, are involved to audit the financial outcomes ready by the entities. The auditors present an independent verify around the accounting policies, system of estimation, mathematical accuracy around the economic outcomes presented.

The duties are certainly not as simple as other individuals would believed, as auditing involve many qualified judgement to make sure that the accounting policies adopted are certainly not materially deviated in the local financial reporting standard FRS.

In brief, auditing present and independent check out around the financial outcomes, and publish an opinion around the financial results with the business: to offer opinion on in the event the financial outcomes are relatively stated.

Impairment Testing of an Asset

noreply@blogger.com (vamert) — Thu, 21 Mar 2013 15:06:29 PDT

Auditing & Accounting experts predicted that impairment testing on intangible assets, investments, fixed assets, assets, etc ought to be considered critically in a specific basis in the forthcoming year, after the credit recession.

The recession has influenced the stock prices decrease, the value of the intangible assets sank appropriately. The recession provides a trigerring factors for the impairment testing.

As a result, the auditors ought to emphasize to the customers that the impairment testings need to be executed earlier ( rather than from time to time near the audit), as the impairment testings essential very often. Rigorous analysis by auditors are important, because financial statements users will likely be utilizing the financial statements more very carefully.

Audit Evidence- Firm's Minutes & Resolutions

noreply@blogger.com (vamert) — Fri, 15 Mar 2013 04:08:00 PDT

Examining Firm's Annual General Meeting minutes & resolutions, Directors' Meeting minutes & resolutions, Audit Committee Meeting minutes & resolutions is part of the audit function steps.

By means of examining the business's minutes & resolutions, the auditor should be able to be aware of latest progress / recent changes to the Firm's financial and in business positions. Alterations in business directions will be talked about over the Firm's meetings and reported accordingly.

For this reason, the business's minutes & resolutions serve as a good audit proof for auditor to achieve understanding of the Company's business and it need to be filed in properly.

The auditors, usually, will visit the Firm's corporate secretary office to get the Company's minutes & resolutions.

Identification of Doubtful Debt

noreply@blogger.com (vamert) — Sat, 09 Mar 2013 04:02:00 PST

How do we recognize possible doubtful client when performing audit ?

We've got to recognize the doubtful receivable just before assessing the prospective provision for doubtful debt for respective client. Be noted that, provision for doubtful debt really should be assessed on a specified basis. Basic provision is no longer permitted in IAS 39. IAS 39 calls for existence of objective proof of impairment on doubtful receivable. Basic provision will not take into consideration of any proof.

Let's come back for the subject on how do we recognize slow moving debtors step-by-step:

1. Obtained trade debtor aging listing ( by client) as in the balance sheet date

2. Think consideration to debtors that have outstanding debts overdue greater than 60-90 days

( the numbers of days may very well be changed as outlined by the business norm)

3. Chosen the debtors ( with important outstanding extended outstanding debts as outlined by the audit materiality with the engagement

In quick, we analyze the debtors who has: 1) extended outstanding balance ( commonly overdue greater than 60- 90 days) and 2 the extended outstanding balance is viewed as material for the goal of audit.

Evaluation of Doubtful Debt

noreply@blogger.com (vamert) — Tue, 05 Mar 2013 02:15:51 PST

Identification of Doubtul Debt, we would prefer to proceed additional on tips on how to assess the exposure to doubtful debt. An incredibly important query to ask: Does all extended outstanding debt represents doubtful debt, for which the provision must be offered for ? The answer is quite subjective, and involved many qualified judgement.

Let's start out the evaluation with asking our readers some scenarios as under:

[Scenario A] ABC Corporation has outstanding amount due from Corporation A (aged > 90 days), who's extended standing customer of ABC Corporation for the previous ten years with no history of default in repayment. The extended outstanding quantity is attributable for the slow-repaying from Corporation A.

[Scenario B]ABC Corporation has outstanding quantity due from Corporation B(aged > 90 days), who's extended standing buyer of ABC Corporation for the previous 20 years with no history of default in repayment. Corporation B commonly paid the amounts when they're due. There is absolutely no dispute involved inside the outstanding quantity due from Corporation B.

Satyam's Fraud Case- Misrepresentation of Cash

noreply@blogger.com (vamert) — Mon, 25 Feb 2013 13:52:10 PST

Not too long ago, the profession is attack by the important fraud scenario affecting India's IT Giant- Satyam. Satyam accepted that he has committed fraud, a part of the action involves: inflating cash and bank account balances by $1 Billion dollar!

This professions are asking yourself how could the auditor miss out such a massive misrepresentation in cash and bank balance. Normally, audit procedures consist of:

- getting bank confirmation straight in the client's banker

- agreeing cash and bank balance per Trial Balance amount to Bank Statement

The confirmations and bank statements present a specific amount of audit comfort zone, provided that it really is an independent party confirmation, in lieu of client-generated proof.

Nonetheless, Pricewaterhouse Coopers, that are the auditor for Satyam Computer Services Ltd, claims that the audits have been carried out relative to applicable auditing standard and have been adequately supported by audit proof. Apparently, the fraud can not be quickly found by getting bank confirmation. If not, it wuld have already been found, provided that Pricewaterhouse Coopers has been the auditor of Satyam for various years.

We shall wait for additional news / reports then.

Impairment of Assets (Objective of IAS 36)

noreply@blogger.com (vamert) — Sat, 23 Feb 2013 15:22:20 PST

The objective of IAS 36 will be to assure that the Company's assets are carried at no additional than their recoverable value. The asset is carried at far more than its recoverable value if its carrying value exceeds the amounts to become recovered by way of use or sales with the asset. In the event the carrying value recoverable amount, the asset must be impaired.

IAS 36 is regarded as incredibly for financial statement users. Let me illustrate a situation exactly where no Corporation will not apply IAS 36 appropriately.

Corporation ABC have recorded some machineries in its accounting books for the year ended December 31, 2008. Nevertheless, resulting from excessive usage with the machineries & incorrect maintenance, the machineries are at the end of its life cycle with around nil value. Corporation ABC is going to scrap off the machineries in 1 month time. On the other hand, in the book, the Machineries have a net book value of 1 Million U.S dollar.

Some investors are in the process of taking over Corporation ABC. While reviewing the Corporation ABC's financial statement, they are much more than happy to find out that the Corporation has US$1 Million valuation on machineries on hand. As a result, they are willing to pay another US$1 Million on top with the initial offer price!

In the event IAS 36 has been applied adequately, the Corporation should have impaired the Machineries to its recoverable value. Investors would not have settled another US$ 1 Million for the end-of-life machineries. Consequently, it is essential to carry out correct impairment assessment for significant assets on the Company's accounting books of record.

Corporate Fraud Again - Stanford Fraud Case

noreply@blogger.com (vamert) — Thu, 21 Feb 2013 04:09:08 PST

8 Billion dollars US dollar fraud by US banker, Allen Stanford. The scam is broadly perceived as Allen Stanford taking the ill-regulated offshore banking sector in Antigua.

Stanford financial group has purportedly offered 8 Billion US dollar worth of certificates of deposits that stated unreasonably high rate of interest. CAS Hewlett, Antigua-based accountancy firm could be the auditor. However, the where-about with the chief executive is unidentified.

CAS Hewlett gave unqualified audit opinion for the statutory account of Stanford.

Nonetheless, what regulators concern will be the representation with the bank, as quoted under:

'The defendants have misconstrued to CD purchasers that their deposits are protected, falsely claiming that the bank re-invests client funds mostly in 'liquid' financial instruments (the portfolio); monitors the portfolio by way of a group of 20-plus analysts; and is topic to yearly audits by Antigua regulators.'

Small business accounting- Cash

noreply@blogger.com (vamert) — Tue, 19 Feb 2013 13:52:03 PST

Commonly, the small business consists of:

Cash on Hand
Cash in Bank

Commonly, the cash on hand amounts are certainly not material, when important level of the businesses’ cash are stored in bank. What might be the accounting entries for cash receipt and cash disbursement (i.e. payment).

Upon receiving of cash from debtors:

Debit: Cash in Bank
Credit: Trade Debtors

Intended for bank charges around the bank account deducted from bank account straight:

Debit: Bank charges
Credit: Cash in Bank

Upon disbursement of cash (i.e. outflow of cash) for espenses

Debit: Trade Creditors/ expenses
Credit: Cash in Bank

It is significant to note that: a on-line bank account allow the small business to monitor the transaction on a actual time time frame. Conventionally, small business is expected to verify the cash inflow and outflow when they've received the month-to-month bank statement in the bank. With on-line banking account, the small business is permitted to view the transactions on a timely basis.

Small Business Accounting

noreply@blogger.com (vamert) — Fri, 15 Feb 2013 15:06:19 PST

Prepayment in reality, small business created one particular lump sum prepayment or down payment for purchases or solutions across a specific period. As an illustration, the business may well put into insurance coverage contract to insure its asset for any period of twelve months.

Through accounting point of view, the quantity prepaid really should be expense more than the period of service covered. For instance, the 12-month insurance coverage premium paid really should be expense off more than a period of 12 months. What will be the accounting remedy then?

Assuming Corporation ABC entered into insurance coverage contract to insure its inventory. Total insurance coverage premium paid for is US$12,000.

After payment of insurance coverage, the Corporation passed the following entries:

Debit Prepayment (B/S- Asset)12,000
Credit Cash 12,000
(Getting prepayment to insurer for insurance coverage contract)

At month finish, the following entry might be passed to recognize the insurance coverage expense

Debit Insurance expense (P/L)1,000 (12,000/ 12)
Credit Prepayment 1,000
(Getting utilization of month-to-month insurance coverage expense)

In the finish of one year, the prepayment accounted might be completely utilized.

Debtors Turnover Analysis

noreply@blogger.com (vamert) — Wed, 13 Feb 2013 14:45:27 PST

In auditing debtor balance, auditor will execute some analysis with the debtors turnover with the audit client, and in comparison the outcome to prior year to recognize uncommon changes.

Debtors Turnover (day) is computed as under:

Average Debtor Balance / Sales x 365 days = Debtor Turnover (day)

Debtors turnover ratio implies the velocity of debt collection of a firm. In uncomplicated words it indicates the amount of instances average debtors (receivable) are turned more than through each year.

We are going to expecting a deteriorating debtor turnover (day) within this gloomy economy atmosphere. For instance with an instance, a buyer of our audit client might take longer period to repay its outstanding balance due on time, and herein raise the amount of day the receivable stays inside the debtors balance.

Clients are squeezing their creditors by pro-longed their payment term. Each of our audit client may well, in a different leg, delay the repayment to its (audit client's) suppliers.

A economy effective would have already been made, because the delaying in repayment has direct effect around the ultimate's suppliers selection on resource allocation. In afraid of promoting things to doubtful shoppers, the ultimate suppliers could have cancel/ cease the supplies to our audit client.

As such, functioning capital must be analyzed by auditor to recognize uncommon situations that could take place.

Accounting entries to record impairment

noreply@blogger.com (vamert) — Sun, 10 Feb 2013 14:18:49 PST

Previously, we discussed in regards to the purpose of IAS 36- Impairment of Assets and all other connected subjects. We are going to proceed additional around the accounting entries of impairment. Frequently, upon recognition of impairment, the following entries should really be passed:

Debit Impairment Loss (Profit & Loss)
Credit Provision for Dimunition in Value (Balance Sheet)

Provision for Dimunition in Value is a contra account to the existing asset account. For instance, the contra account of Stocks, in such cases, is Provision for Stocks Obsolescence. The Provision for Dimunition in Value has properly given away the impact of impairment around the existing asset, that could be useful to financial statement users.

Auditing Interest Expense

noreply@blogger.com (vamert) — Fri, 08 Feb 2013 03:40:01 PST

What is one of the mostproductive way of auditing interest expense recorded?

So as to verfiy the reasonableness of interest expense recorded, we applied the following formula:

Principal x Average Interest Rate x Period = Interest Expense

Many of the auditor would execute vouching to bank assistance by tracing the amount of money reflected on bank assistance to total stated on General Ledger. On the other hand, vouching only assure the existence, it will not address completeness.

Because of this, reasonableness is generally valuable to verify for the completeness of expenditures recorded.

Breach of Debt Covenant

noreply@blogger.com (vamert) — Tue, 29 Jan 2013 14:23:48 PST

When a Corporation withdrawn loans from bankers, a debt covenant situation might be stated around the time period loan facility letter call for the Corporation to retain /meet specific financial position. As an illustration, the debt covenant could call for the Corporation to retain existing ratio of no less than 1, or retain net worth ( i.e. net asset) of specific amounts.

In the event the Corporation will not match the debt covenant condition, the bank is contractually qualified for get in touch with back the loans promptly. To illustrate, if Corporation ABC fail to meet debt covenant requirement of keeping existing ratio of 1, bank is entitled to get in touch with back the loans quantity promptly.

On the other hand, in practice, the Corporation will negotiate with its bankers to enhance the period of assessment ( ie. extend the timeline for the Corporation, to ensure that the Corporation to enhance its economic position).

Pertaining to auditing purpose, the Corporation ought to call for a waiver letter in the bank as an proof that the bank is not going to get in touch with back the loan promptly. Otherwise the non-current portion of term loan must be considered term loan if waiver letter was not acquired immediately after the Corporation has breached its debt covenant.

Small Business Accounting- Interest Expense

noreply@blogger.com (vamert) — Sat, 26 Jan 2013 18:18:27 PST

What are the entries to record interest expense incurred on borrowings from bank ? Upon occurrence of interest expense:

Dr. Interest Expense (P/L)
Cr. Interest Payable (B/S)

Upon repayment of interest payable to bank:

Dr. Interest Payable (B/S)
Cr. Cash (B/S)

Auditing Creditors IV

noreply@blogger.com (vamert) — Wed, 23 Jan 2013 13:39:36 PST

In preceding posts in relation to auditing creditors, we pointed out about:

- Evaluation of Creditors' Statement of Account
- Acquire Cut-off testing
- Comparison of existing year balance to prior year balance

Also for the above, it will be fantastic if a creditors' turnover evaluation is performed:

Creditors Turnover (day): Purchase/ Average Trade Creditors x 365 [for periodic inventory system]
Creditors Turnover (day): Purchase/ Average Trade Creditors x 365 [for perpetual inventory system]

Auditor can evaluate the creditors' turnover (day) calculated above to common creditor term provided from the creditors to assess in the event the Corporation has been repaying on time. In the event the creditors' turnover (day) is drastically longer than the credit term provided by suppliers, this could indicate the liquidity situation the Corporation is facing.

Cash audit- internal controls in cash process- cash payment

noreply@blogger.com (vamert) — Mon, 21 Jan 2013 14:36:28 PST

In our earliest entries with regards to cash audit, we reviewed in regards to the audit processes of auditing unrepresented cheques. We'll go over extra extensively for audit procedures in auditing cash and bank balances of our audit consumers.

Auditors may perhaps take into consideration test the internal controls of your client's cash course of action. For this entry, we'll deliver an overview of your probable audit procedures to test the internal controls in cash payment course of action:

pick specific quantity of random samples, and test that payment voucher are adequately ready and authorized
pick specific quantity of random samples, and test that bank reconciliations are adequately ready and reviewed
pick specific quantity of random samples, and test that journal entries are adequately posted into Common Ledger
pick specific quantity of random samples, and test that payment voucher facts match together with the corresponding payment facts (e.g suppliers' invoices), and so forth

Inventory System - Perpetual vs Periodic

noreply@blogger.com (vamert) — Sat, 08 Dec 2012 21:21:33 PST

Entity can account for its inventory by utilizing either perpetual process or periodic process.

Beneath perpetual process:- the entity record for just about every single motion of your inventory (i.e. in and out of your inventory)
- at any single point of time, the business is capable of recall the inventory on hand
- frequency of stock-take expected is lesser than these accounted applying periodic process

Beneath periodic process,
- just about every single motion for the inventory (i.e. in and out) will not be expected to become tracked
- the entity execute a periodic stock-take to ascertain the inventory balance
- inventory on hand can only be recalled just after the stock-take is performed
- frequency of stock-take expected is larger than these accounted applying perpetual process
- cost of sales is calculated by utilizing the following formula: Opening Stock+ Cost of Goods Produced / Acquire - Closing stock

The above summarize the distinction involving perpetual inventory process and periodic inventory process.

Inventories are non-monetary product - No forex

noreply@blogger.com (vamert) — Sat, 01 Dec 2012 03:17:56 PST

We received inquiries from our reader no matter if inventories ought to be translated/ revalued determined by year end rate.

IAS 21 “The Effects of Alterations in Foreign Exchange Rates” states that non-monetary product that happen to be measured with regards to historical cost within a foreign currency shall be translated working with the exchange rate in the date with the transaction. Note: inventories are non-monetary things.

Inventories are non-monetary product and need to be translated at their transaction rates if they can be denominated in foreign currencies. On the other hand, there could be situations exactly where the client could have revalued the inventory wrongly by translating the inventory determined by year-end closing rate or the typical for your year.

The auditor ought to go over this condition with corporate administration, and request management to quantify the error.