Odisha CHSE +2 Vocational Accounting and Auditing flashcards

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

Accounting Equation

Assets = Liabilities + Capital. Every transaction changes at least two items but keeps the two sides of the equation equal, so the balance sheet always balances.

Accrual Concept

Income is recorded when earned and expenses when incurred, regardless of when cash is received or paid. It underlies outstanding and prepaid adjustments in final accounts.

Error of Principle

A mistake in applying accounting principles, such as treating capital expenditure as revenue expenditure. It does not affect trial balance agreement but distorts profit and asset values.

Suspense Account

A temporary account opened to carry the difference in a trial balance. It is closed once all one-sided errors are located and rectified by journal entries.

Imprest System

A petty cash system where the petty cashier starts with a fixed float and is reimbursed periodically with exactly the amount spent, restoring the float to its original level.

Cheque Deposited Not Credited

A cheque paid into the bank but not yet recorded by the bank. In a BRS starting from the Cash Book balance, it is added to the Cash Book balance.

Cost of Goods Sold

Opening stock plus net purchases plus direct expenses minus closing stock. It is deducted from net sales in the Trading Account to arrive at gross profit.

Outstanding Expense Adjustment

An expense incurred but unpaid at year-end is added to that expense in the Profit & Loss Account and shown as a current liability in the Balance Sheet.

Closing Stock Treatment

Closing stock is credited in the Trading Account to reduce cost of goods sold and simultaneously shown as a current asset on the assets side of the Balance Sheet.

Straight Line Method

Depreciation = (Cost minus scrap value) divided by useful life. An equal amount is charged every year and the asset can be reduced to zero or scrap value.

Written Down Value Method

Depreciation is charged at a fixed percentage on the book value at the start of each year. The charge falls each year and the asset is never fully written off.

Provision vs Reserve

A provision is a charge against profit for a known liability or expected loss of uncertain amount; a reserve is an appropriation of profit meant to strengthen the financial position.

Bill of Exchange

A written instrument containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum to a specified person or bearer.

Days of Grace

Three days added to the period of a bill of exchange to compute its due date. If the due date is a public holiday, the preceding working day applies.

Noting Charges

Fees paid to a notary public to record the dishonour of a bill. They are borne by the drawer and recovered from the acceptor along with the bill amount.

Sacrificing Ratio

The ratio in which old partners give up their share of profit in favour of an incoming partner. It equals old ratio minus new ratio and governs goodwill distribution.

Revaluation Account

An account prepared at admission, retirement or death to record increases and decreases in assets and liabilities. The resulting profit or loss is shared by old partners.

Realisation Account

An account opened on dissolution of a firm to record the sale of assets, payment of liabilities and realisation expenses, showing the profit or loss on realisation.

Securities Premium

The excess amount received over the face value of shares when issued at a premium. It is a capital receipt credited to a separate account and used for specified purposes.

Forfeiture of Shares

Cancellation of shares for non-payment of calls. Share capital is debited with the called-up amount and the amount already received is credited to Share Forfeiture Account.

Debenture Interest

Interest payable to debenture holders at a fixed rate, charged against profit whether or not the company earns a profit. It is payable even when there is a loss.

Statutory Audit

An audit made compulsory by law, such as the audit of companies under the Companies Act. The auditor is appointed under statute and reports to the members.

Internal Check

A system of arranging duties so that the work of one person is automatically checked by another. It is a part of the wider system of internal control.

Audit Programme

A written, ordered list of audit procedures to be followed during an audit, prepared in advance so that no important item is omitted and work is systematic.

Vouching

Examination of documentary evidence supporting entries in the books to establish their authenticity and accuracy. It is regarded as the essence of auditing.

Verification of Assets

Proof at the balance sheet date of the existence, ownership, valuation and disclosure of assets, by physical inspection, title deeds and external confirmation.

Stock Valuation Rule

Inventory is valued at the lower of cost or net realisable value. The same basis must be consistently applied from year to year as required by accounting standards.

Auditor Disqualification

A body corporate, an officer or employee of the company, a person indebted to the company beyond the prescribed limit, or a relative holding securities cannot be appointed auditor.

Qualified Audit Report

A report in which the auditor states that the financial statements are fairly presented except for a specific matter, described in a separate basis-for-qualification paragraph.

Audit Evidence

Information used by the auditor to reach a conclusion. It must be sufficient in quantity and appropriate in relevance and reliability, with external documentary evidence preferred.

Adverse Audit Opinion

An opinion that the financial statements do not give a true and fair view because misstatements are both material and pervasive, contrary to a qualified opinion.