Basic Accounting Records
Purpose and use of different accounting records
Accounting Records defines relevant documentations involved at the time of preparation of financial statements as well as recording of financial audit reports (Zadek, Evans and Pruzan 2013). This majorly include recording of assets, liabilities, journals as well as ledgers for other supporting documents such as invoices. Some of the main purpose and usage of accounting records are mentioned below:
Ledger- It is important to consider the fact that maintaining ledger is a compulsion attribute in an accounting system (Yang and Jia 2013). In other words, Ledger can be used for preparing trial stability that check numerical correctness as shown in the office books. Therefore, Ledger is a storehouse containing potential information used for preparation of accounts as well as financial statements.
Prime Entry books- This is one of the access volume that is also termed as books of original entry whereby given dealings are recorded in appropriate manner (William, Glover andPrawitt2016). This main books of prime entry includes sales daybook, sales return daybook as well as purchase daybook and general journal and cash book.
Income Statement- This particular accounting record lists all the business income as well as expense transactions (Whittington and Pany2012). It is also termed as Profit and Loss Statement. In this secretarial record, it is widely used for measuring the productivity of trade. This can be generated within the specified time and prepared on daily, weekly as well as monthly and yearly basis. Therefore, analyzing Income Statement help in determining if there, are periods in business incurring more expenses and generating additional income for planning of budget(Wanget al. 2013).
Balance Sheet- This particular accounting record aims at recording all assets and liabilities as owned by a given company within a specified time (Wallman2013). Assets and liabilities are dividing into current as well as long-term categories in the stabilitypage as mentioned in the liquidity section.
Statement of Cash Flows- This particular cash flow statement aims at recording all inflow as well as outflow of cash. It helps in determining whether business has physically received enough cash for paying off its expenses in cash (Vera-Mun, Kinney and Bonner 2014).
Accounting plays vital as well as practical role by way of raising the in turn by rendering answers to questions faces by accounting user gaining secretarial information (Stein, Simunic and Keefe 2012). In other words, it helps in understanding how information can be good or bad concerning monetary condition of commerce. Accounting is important for variety of reason. This includes:
Main Financial Statements
Accounting records setting on base for practices assisting business for comparing results for one period to another period (Simunic2014)
It takes into consideration insulating records properly backed up with proper as well as genuine vouchers acting as good evidence in a court of law (Ricchiute2013)
Increased volume of transactions majorly ends up with oversized number of transactions as well as accounting records avoids necessity of memory numerous transactions (Reading 2013).
Assessing the significance and importance of primary accounting concepts
Financial Statements are prepared in accordance with agreed guidelines. It requires understanding the guidelines as well as major objectives of fiscal coverage. The main object of monetary coverage is providing existing as well as potential investors and creditors making use of rational investment and other credit similar decisions (Messier 2016). Some of the primary concept of bookkeeping is as follows:
Accruals concept of Accounting-Accruals basis of secretarial takes into consideration non-cash dealings as mentioned in the monetary statement for specified periods. Accounts are set and prepared in agreement with accruals basis (Louwerset al. 2013). An accrual is a journal entry that helps in recognizing revenues as well as expenses for specified period.
Going concern- Going apprehension is one of the commerce functions without any danger of insolvency for prospect analysis purpose for at least 12 months (Leung, Coram and Cooper 2013). This particular accounts need to be prepared on going concern basis. In other words, accounts have been prepared based on assumptions for operating for future activities. It takes into consideration business for basic declaration of intention for running in all activities for considering basic assumptions for preparing financial statements. Therefore, declaration of going concern reveals business entity for viewing at the intention for liquidity or curtailing materiality for scale of operations (Knechel, Salterio and Ballou2014).
Consistency concept-This particular concept states adopting of accounting methods or principles as followed during the accounting periods. There is wide variety of ways for selecting the approach considering reliable picture of business enterprise (Kinney, Palmrose and Scholz2015).
Prudence Concept- Prudence concept considers under conservatism principle whereby an accountant records liabilities as well as expenses (Jeppesen2012). This particular concept on prudence principle requires the accountants for remaining cautious by way of adopting policies as well as estimating income and assets.
Business entity concept- This particular concept on Business entity means transactions in association whereby business records from owners and other business (Hayes, Wallage and Gortemaker2014). It requires preparing separate accounting records for specific organization that exists in recording of assets and liabilities.
Primary Concepts of Accounting
Evaluating factorinfluence the nature and arrangement of accounting systems of an association
Every business organization aims at establishing well-functioning accounting system. In other words, accounting systems mainly provides computerized methods for recoding as well as custodypath of daily, monthly, or yearly financial operational aspects of commerce activities (Hackenbrack and Knechel2013). Therefore, Small and large business make use of accounting systems for generating data for accounting for accurate management decisions. Some of the factors influencing nature as well as structure of accounting systems are as follows:
Compatibility with Business- Compatibility with business is one of the major functions of accounting system that influences nature of business as well as operational aspects of specified business enterprise (Furnham and Gunter 2015). Different industries require unique type of systems majorly in accounting systems. It requires making use of industry-appropriate accounting system involving system for meeting specified goals of business enterprise. Addition to that, daily functions of business influence over accounting type systems and its working attributes. Accounting scheme is effectual when it is well-matched aligning with daily trade needs like storecustomer information, tracking inventories as well as creating invoices and keeping account at the same time (Elder, Beasley and Arens2012).
Perception- It depends upon how asecretarialscheme is conventional by workers as well as organization of an association influencing its efficiency and significance at the same time (Eilifsenet al. 2013). In other words, Employee Resistance aligns with changes made in secretarial systems because of the complication of system as well as efficiency of an existing scheme and anxiety over introducing secretarial controls and auditing. Most of the times employees require accounting systems in contrary with its managerial activities (DeFond and Zhang 2014)
Level of Training- At the time of introducing accounting systems in a business environment, training users are treated as the only key requirement (Cook and Winkle 2012). It takes into consideration nature as well as training of attained users influencing the way system serves for meeting the commerce objectives. Hence, lack of sufficient training for managers as well as supervisor will reason problem in accounting system that needs to be solved by using financial management policies. On the contrary, well-trained users are capable in handling an accounting system as well as use the system for solving financial functions of a business (Boynton and Johnson 2015).
Identifying diverse mechanism of business risk linked with planned move of an organization
There are several mechanism of business risk and some of these are mentioned as under:;
Factors Influencing Accounting Systems
Operational Risk- This is one of the risks of loss ensuring from short internal process as well as systems and external events leading to emerging legal risk (Arens, Elder and Beasley 2012). In other words, it means possibility of loss arising from stoppage to go with laws as well as careful moral principles and other written conformity obligation embodies exposure for proceedings in all aspect of given associates institution behavior.
Compliance Risk- This particular risk is associated with current as well as potential risk arising from earnings or cash from violation or non-conformance concerning laws, acceptedpractice and method or any other ethical standards (Anderson 2013). In other words, this kind of risk arises from things measuring laws as well as rules prevailing in sure bank merchandise. Therefore, compliance risk exposes the establishment to fines, payment damages as well as civil cash punishment and elimination of contracts.
Liquidity Risk- This kind of business risk arises from earnings or capital arising from bank incapability for fulfilling the obligations for not acquiring unacceptable losses. In other words, Liquidity risk embraces ways for not managing unplanned decreases or changes in funding sources (Kinney, Palmrose and Scholz 2015). Therefore, this kind of risk arises from failure to recognize or in case address change in market conditions possessing effect on power for liquidating assets worth.
Critically analyze manage system in place of commerce for reason of fraud recognition
On critical analysis, it is noted that Employee Fraud is a significant issue that is faced by any business organization of all types, sizes, industries and locations. It is essential to believe in the employees who are loyal and working for the benefit of an organization. There are still some loopholes where the employees commit fraudulent activities (Yang and Jia 2013). From the research on Report of Nation on Occupational Fraud and Abuse, it has been noted that typical organization loses more than 5% annual revenue per year because of employee fraud. This means prevention as well as detection can easily help in reducing the percentage of loss by any business organization. It is essential for any business organization for planning ways so that they can prevent fraud activities for recovering the losses after the fraud has been committed.
Fraud can be in various forms that can further be divided into three major categories such as corruption, financial statement fraud and asset misappropriation. Here, asset misappropriation is the most common fraud that prevails within the employees where they either steal or exploits the resources of business organization (Kinney, Palmrose and Scholz 2015). For instance, asset misappropriation means stealing of cash before it has been recorded or making a fictitious expense reimbursement claims as well as steals non-cash assets of business organization.
Employee Fraud as a Business Risk
Management Integrity- This particular control system will set the overall tone for business organization. This needs to be communicated to employees by giving them employee manuals as well as procedural manuals. Enforcement policies of management consider as a major indicator that shows the level of commitment for attainment of successful internal control system.
Competent Personnel- It is responsibility of business organization for recruiting as well as retaining competent personnel that indicates management intent by properly recording the accounting transactions (Kinney, Palmrose and Scholz 2015). This means retaining the existing employees increases the comparability of financial records every year. It is confidence of an auditor that underlies the accounting records for observing the reliability of organization personnel. This mainly reduces the auditor assessment of the risk of material misstatement in the entity financial statements.
Segregation of Duties- This ensures that segregation of duties help in effective internal control as it reduces the risk of mistakes as well as inappropriate actions. This action separates authoritative, accounting as well as custodial functions.
Records Maintenance- It is essential for maintaining appropriate records that ensure proper documentation as it exist for each of the business transactions. Recording means storing, safeguarding as well as destroying the tangible or electronic records.
Evaluating risk of fraud within a commerce regarding suggestive of method for fraud recognition
There are various key principles that are used proactively for managing fraud risk prevailing in an organization. The fraud risk includes:
Method of fraud recognition
- As a part of the governance structure in an organization, fraud risk management has to be included by written policies for conveying the expectations of the Board of Directors as well as Senior Management for managing the risk (Yang and Jia 2013).
- Fraud Risk Exposure that needs to be assessed by any business organization for identifying the specific potential schemes as well as events that the organization needs to mitigate as far as possible
- Prevention techniques majorly avoid the potential fraud risks events that are established as and where feasible for mitigating the possible impacts in business organization
- Detection techniques are used for uncovering the fraud events where preventive measures fails or unmitigated risks are majorly realized at the same time
- Reporting process should be used for soliciting input on potential fraud as well as use of coordinated approach for investigating the activities. This can be done by taking corrective action that ensures potential fraud by addressing the fraudulent activities in the most appropriate way (Yang and Jia 2013).
Planning an audit with orientation to range, materiality and risk
While auditing the payroll system for a company who operates in retail sector, it is essential for ensuring that current employees are paid accurately and promptly. It has been found that there were various issues found in the payroll system in the company that operates in the retail sector (Kinney, Palmrose and Scholz 2015). This includes;
Data Collection- It has been noted that internal control weakness majorly starts with data collection when business uses manual or in case non-computerized timecard system. Here, the control risks can be viewed as inherent with the manual timecard that majorly focus on punching as well as falsification of timecard information.
Separation of Duties- It happens when a particular person has been appointed for handling the entire payroll process or not enforcing the separation of duties where internal controls are open to invitation.
Data Security- Security controls majorly ensures employees that they will keep their personal and payroll information confidential. On the other hand, weak security controls leads to theft of information.
Internal Audit- It is noted that strongest payroll controls fails to eliminate the errors or fraud. It is the business organizations that can prosecute an employee who uses misappropriate business assets or financial resources (Kinney, Palmrose and Scholz 2015).
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