Assam HS Skill Subject Accountancy and Auditing key terms

The statement that total assets equal total liabilities plus owner's equity. It is the foundation of double entry, and every recorded transaction must leave the equation in balance.

The assumption that a business will keep operating long enough to use its assets and settle its liabilities in the normal course, so financial statements are prepared on a historical cost basis rather than break-up values.

Revenue is recognised in the period it is earned and expenses in the period they are incurred, whether or not cash has moved. It drives end-of-period adjustments and the matching of costs with income.

Every transaction has two sides of equal amount, a debit and a credit, so that the total of debits always equals the total of credits. This makes the trial balance possible.

The book of original entry in which transactions are recorded chronologically with narration, showing the accounts debited and credited and the date of each transaction before posting to the ledger.

The principal book of accounts containing one account for each asset, liability, capital, income and expense, where journal entries are posted and balances are worked out periodically.

A statement listing all ledger account balances at a given date, with debit balances in one column and credit balances in another, used to check arithmetical accuracy before preparing final accounts.

A special journal such as the purchases book, sales book or cash book in which one class of similar transactions is recorded before monthly posting, reducing the load on the main journal.

An entry that appears on both sides of the cash book, for example cash deposited into or withdrawn from bank, because the transaction affects two accounts kept within the same book.

A statement prepared at a given date reconciling the bank balance shown by the cash book with the balance shown in the passbook, explaining items such as cheques not yet cleared and bank charges.

A temporary account opened to hold the difference in the trial balance while errors remain untraced; it is closed once the errors are found and rectified.

A mistake in which a transaction is recorded in the wrong class of account, such as treating a capital expense as a revenue expense, so the trial balance still agrees but profit is misstated.

The systematic allocation of the depreciable cost of a fixed asset over its useful life, reflecting wear and tear, obsolescence or passage of time, and charged to the profit and loss account.

A depreciation method in which an equal amount, cost less scrap divided by useful life, is written off every year, giving a constant charge and a steadily declining book value.

A depreciation method charging a fixed percentage on the reducing book value of the asset each year, so the charge falls over time and the asset is never written off completely.

An amount set aside out of profits for a known liability or a known risk whose exact amount cannot be determined with certainty, such as provision for doubtful debts or for depreciation.

An appropriation of profit retained in the business to strengthen the financial position or meet future needs, classified as capital reserve or revenue reserve according to its source and purpose.

A business carried on by two or more persons who agree to share profits in an agreed ratio, each being an agent of the firm and generally bearing unlimited liability for its debts.

Money or goods withdrawn by the owner or a partner for personal use, which reduce capital and are not treated as an expense in the profit and loss account.

An extension of the profit and loss account of a firm that shows how net profit is distributed among partners through interest on capital, salaries, interest on drawings and division of the remaining profit.

The branch of accounting that records, classifies and analyses the costs of materials, labour and overheads to determine the cost of products or services and to help management control expenditure.

The total of direct material cost, direct labour cost and direct expenses incurred in producing a product; it is the first stage of the cost sheet before overheads are added.

The additional cost of producing one more unit, normally equal to variable cost, used in decision making to compute contribution and the break-even point.

The process of identifying, measuring and communicating financial and non-financial information to managers so that they can plan, control and take decisions within the organisation.

The independent examination of the books and records of an entity, carried out to enable the auditor to express an opinion on whether the financial statements give a true and fair view.

An audit required by law, such as the audit of a company under the Companies Act, in which the auditor's appointment, powers and duties are laid down by the statute.

The whole system of policies and procedures adopted by management to safeguard assets, ensure the accuracy of records and promote operational efficiency and adherence to policy.

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

An independent appraisal function carried out by employees of the entity to review and evaluate its internal controls and advise management, differing from external audit in scope and status.

The information used by the auditor, drawn from records, physical inspection, confirmations and observation, to support conclusions and form the opinion; it must be sufficient and appropriate.

A written list of the audit procedures to be performed, with the staff assigned and the time allowed, prepared in advance to plan the work and control its progress.

The amount by which financial statements could be misstated before it would influence the decisions of users; it guides the auditor in planning work and evaluating uncorrected misstatements.

The auditor's examination of documentary evidence such as invoices, receipts and contracts to verify that a transaction recorded in the books is genuine, properly authorised and correctly entered.

The process of confirming the existence, ownership, valuation and presentation of assets and liabilities at the balance sheet date, by inspection, title deeds, confirmations and valuation checks.

The written communication from the auditor to the shareholders or owners stating the scope of the audit and whether the financial statements give a true and fair view, with reasons for any qualification.

An opinion expressed when the auditor concludes that the financial statements are not free from material misstatement but the effect is not so pervasive as to require an adverse opinion.

The state of mind and appearance in which the auditor is free of relationships or interests that could compromise objectivity, so that conclusions are reached without bias or outside influence.

An ethical duty not to disclose client information obtained during an engagement without proper authority or a legal or professional requirement to do so.

The combination of people, procedures, software and data used to record transactions, process them and produce reports; in a computerised system controls include passwords, access rights and audit trails.