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Accounting System TASK 13

   

Added on  2020-01-28

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Financial Systems 1

TABLE OF CONTENTSINTRODUCTION...........................................................................................................................3TASK 1............................................................................................................................................31.1 Purpose and use of different accounting records..................................................................31.2 Importance and meaning of the fundamental accounting concept........................................41.3 Factors that influence nature and structure of the accounting system..................................5TASK 2............................................................................................................................................62.1 Different components of the business risk ...........................................................................62.2 Analysis of control system placed in the business................................................................72.3 Risk of fraud and ways to detect same..................................................................................7TASK 3............................................................................................................................................93.1 Planning of audit with reference to scope, materiality and risk ...........................................93.2 Identify and use appropriate tests........................................................................................103.3 Audit process.......................................................................................................................114.1 Prepare a draft report...........................................................................................................124.2 Drafting the suitable management letters in relation to the statutory audit report..............13CONCLUSION..............................................................................................................................13REFERENCES..............................................................................................................................152

INTRODUCTIONFinancial system is defined as exchange of funds between two entities at the domesticand international level. In the report different accounting records are discussed that mainlyprepared in accounting practices across the globe. In this regard journal and ledger as well asbank statements are included in the report. After that accounting concepts are also discussed inthe report. In this an attempt is made to understand the key accounting concepts and theirapplication in the accounting. In the middle part of the report business risks are explained indetail. Apart from this, control systems that are mostly used in the organizations are alsodescribed in detail in the report. After that risk of fraud and ways to detect fraud are alsodescribed separately in the report. At the end part of the report, auditing is also discussed and it isbroadly discussed in the report. At last in the report, audit report is prepared and suitablemanagement report is prepared in which recommendation is given regarding accountingpractices.TASK 11.1 Purpose and use of different accounting recordsThere are different purposes of accounting records. These accounting records are asfollows.Journal – It is a statement in which all transactions are recorded whether these arerelated to the receipt and payment of an amount in respect to any type of account. Theseaccounts may be personal, real or nominal. Whenever any transaction takes place it isrecorded in the company books of accounts. It is a source document from which entriesof business transaction is done on Journal account. In the Journal, there is a column of3

date, particulars and ledger folio as well as debit and credit amount. Hence, this statementprovides information about the transactions that are happening on the specific date and atthe fixed amount (Edwards, 2013). On the basis of entries that are made in the Journal,ledger account is prepared. Main purpose of preparing journal is to provide detailinformation for preparing other accounts like ledger account. In the ledger account,separate account of each person is prepared. Hence, on the basis of ledger account folio,number of ledger account is mentioned in the Journal. In this statement, debit and creditamount are also mentioned in the right hand side. Thus, it can be said that from thisstatement, manager comes to know about the value of each and every businesstransaction. Ledger- Ledger is also one of the most important accounting records for the business. Inthe Journal, all the business transactions are recorded in a proper manner. On the basis ofjournal, ledger account is prepared. This is different statement in which all the accountsare prepared separately. Main purpose of preparing this statement is to help managers ingetting information about balance of all debtors and creditors etc. (Kieso, Weygandt andWarfield, 2010). Hence, managers come to know everything about the specific account.Ledger account is used to identify the components of a specific account like cash andpersonal account. Apart from this, ledger account is also used to prepare trial balance.This is an important statement which is used for preparing income statement and balancesheet. Hence, it can be said that this accounting statement has different uses in theaccounting of business transactions.Bank statements- These are very important statements and by using same, mangers cometo know about the deposits that they have in the banks (Demski, 2013). Main purpose ofpreparing this statement is to formulate business strategy regarding the effective use ofcash and to understand and analyze the transaction already taken place.4

IncomeIncome statement- It is a statement that reflects revenue earned by the firm and profitthat remain after deducting costs and expenses from income. The main purpose ofpreparing income statement is to get information about the profit earned by the companyin specific financial year. On the basis of income statement comparative P&L account isprepared on the basis of which company comes to know that it is performing well orworst in its business.Balance-sheet- It is a statement that reflects the financial position of the firm at the endof the fiscal year. The main purpose of preparing this statement is to evaluate companyperformance from various angels. It is used to identify the areas where company stronglyneeds to pay due attention. Hence, balance-sheet is prepared by all firms irrespective oftheir business size.Cash flow statement- Cash flow statement indicate the cash inflow and outflow fromvarious business activities like operating, investing and financing activity. The mainobjective of preparing this statement is to identify cash flows and trends of same indifferent business activities. It is used to identify the cash and cash equivalents thatremain at the end of the fiscal year. Hence, cash flow statement having due importancefor business firms.5

1.2 Importance and meaning of the fundamental accounting conceptAccounting concept refers to the accounting rules and regulations that are followed whilerecording business transactions in the book of accounts. There are many accounting conceptsthat are followed while recording business transactions. Some of these accounting concepts areas follows: Accrual concept- Under this concept, all the business transactions is recorded in therespective year in which they are earned and incurred. Many times in business, firmsearned money but they do not receive that money. In that case, accrual concept appliesand cash inflow is recorded at the specific value even it is not received. This amount isnot received but already has earned by the firm. On this basis, such income is recorded inthe book of accounts (McNair, Olds and Milam, 2013). On the other hand, in same wayeven Kingston limited does not spend money but it was its responsibility to pay thatmoney on that year. On this basis even firm did not make payment of money an amountis recorded as payment in the books of accounts.Going concern concept- As per this concept, it is assumed that business will remain existforever. Its ownership may change but business will remain in existence in the market.Due to this reason, entire accounting is done by using the name of firm. It is not done onthe basis of using the name of company’s owners. By following this assumption, all theassets are shown in the balance sheet. For example: Kingston purchases an asset of 12,00,000 so it will be recorded the same value and every year, an amount as depreciationwill be deducted from the asset value. There is 10% depreciation amount will bededucted from the asset and recorded in the balance sheet at the reduced value. In thisway, this concept applies in the accounting practices.Dual aspect concept- As per this accounting concept, every business transaction affectstwo sides of the balance sheet. If, Kingston takes loan from the bank or any financialinstitution then assets and liability of the mentioned firm will increase (Zimmerman andYahya-Zadeh, 2011). This is because when firm takes loan then its cash balance getsincreased and in same way, its liability also gets increased. Hence, it can be said that dualentry concept has a practical application in the business. Debit and credit are two aspectsof dual aspect concept and as per this concept; if any amount is debited in one accountthen same amount will be credited in the other account. In this way, this concept is6

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