Assam HS Skill Subject Accountancy and Auditing flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Accounting Equation

The fundamental identity that Assets = Liabilities + Capital. Every transaction affects at least two elements and keeps both sides of the equation equal in amount.

Business Entity Concept

The convention that a business is treated as separate from its owners. Only business transactions are recorded, and proprietor drawings appear as a reduction of capital.

Accrual Concept

Revenue and expenses are recognised when earned or incurred, not when cash is received or paid, so profit reflects the activity of the period rather than its cash flow.

Contra Entry

An entry in the cash book recording cash deposited into the bank or withdrawn for office use, where both aspects appear in the same book and 'C' marks the folio column.

Imprest System

A petty cash arrangement in which the petty cashier holds a fixed float, records payments, and is reimbursed exactly what was spent so the float is restored.

Journal Proper

The subsidiary book that records transactions fitting no other special journal, such as opening entries, credit purchase or sale of fixed assets, and rectifying entries.

Bank Reconciliation Statement

A statement reconciling the cash book bank balance with the pass book balance on a given date, explaining differences from timing, charges, interest, direct credits and dishonoured items.

Error of Principle

An error in which a transaction is recorded in breach of accounting principles, for example treating capital expenditure as revenue expenditure; it does not disturb trial balance agreement.

Compensating Error

Two or more errors whose effects cancel each other out, so the trial balance still agrees even though the individual ledger accounts are incorrect.

Straight Line Method

A depreciation method charging an equal amount every year, computed as original cost minus estimated scrap value, divided by the number of years of useful life.

Provision for Doubtful Debts

A charge against profit created for debts likely to be irrecoverable, estimated as a percentage of debtors and shown as a deduction from debtors in the balance sheet.

Capital Reserve

A reserve created out of capital profits such as profit on sale of a fixed asset or revaluation surplus, which is normally not available for distribution as dividend.

Gross Profit

The excess of net sales over cost of goods sold, disclosed by the trading account. Cost of goods sold equals opening stock plus purchases plus direct expenses minus closing stock.

Profit and Loss Appropriation Account

The account prepared after the profit and loss account of a partnership, showing interest on capital, interest on drawings, partners' salaries and commission, and distribution of residual profit.

Marshalling

The arrangement of balance sheet items either in order of liquidity, beginning with cash, or in order of permanence, beginning with fixed assets, as the preparer prefers.

Prime Cost

The total of all direct costs of production: direct material consumed, direct labour, direct expenses and direct charges, computed before any factory overhead is absorbed.

Contribution

Sales revenue minus variable costs. It contributes first towards fixed costs and then towards profit, and forms the basis for the profit-volume ratio and break-even point.

Auditing

The independent examination of accounting records and financial statements that enables an auditor to express an opinion on whether they show a true and fair view.

Statutory Audit

An audit required by a statute, such as the audit of companies under the Companies Act 2013, where appointment, rights, duties and reporting are prescribed by law.

Teeming and Lading

A fraud in which cash received from one customer is misappropriated and later receipts from another customer are posted to the first account, postponing detection of the shortage.

Internal Check

The arrangement of duties among staff so that the work of one person is automatically checked by another, making error or fraud difficult without collusion.

Audit Evidence

Information used by the auditor to reach the conclusions on which the opinion is based; it must be sufficient in quantity and appropriate in relevance and reliability.

Audit Risk

The risk that the auditor expresses an inappropriate opinion on financial statements that are materially misstated; it is the product of inherent risk, control risk and detection risk.

Materiality

The magnitude of an omission or misstatement that would influence the economic decisions of users of financial statements; it drives the extent of procedures and the reporting decision.

Vouching

The examination of documentary evidence supporting entries in the books of account to confirm their genuineness, accuracy and authorisation; it is regarded as the backbone of auditing.

Verification

The process of confirming the existence, ownership, possession and valuation of assets and the completeness of liabilities as at the date of the balance sheet.

Qualified Opinion

An auditor's opinion stating that, except for the effects of a described matter, the financial statements give a true and fair view; the matter is material but not pervasive.

Emphasis of Matter

A paragraph in the auditor's report drawing attention to a matter already properly disclosed in the financial statements; it does not modify the audit opinion.

Key Audit Matters

Matters of most significance in the audit of financial statements of listed entities, selected from those communicated to those charged with governance and described in the report.

Confidentiality

The ethical duty not to disclose information acquired through professional work without proper authority, except where disclosure is permitted by law or required by professional duty.

Computer Assisted Audit Techniques

Software tools and procedures used by auditors to process client data, including test data, parallel simulation, embedded audit modules and generalised audit software.

General IT Controls

Policies and procedures covering the entire computer environment, including access security, program change control, data backup, disaster recovery and segregation of information technology duties.