Do know whether the decisions in the vicinity, you know that coconut shell moved. The streets are lined with flags and improvised mini political party offices, although the Parliament is not dissolved. Ang pow packets, free food, gifts, money, and keep, distributed almost daily. You have a cell phone has a few questions WINS, votes, or get you a text message (SMS). Not only a local politician (which I don't know) has a generic to me, I have even a birthday greetings for mother's day, though I do not come into consideration. Definitely similarities in ancient Roman letters suggest this tactic "How to win an election"?
Saturday, October 19, 2013
Wednesday, October 9, 2013
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Monday, August 26, 2013
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Wednesday, August 14, 2013
In the world today where almost everyone uses cars as personal transportation, the car itself became a prominent property for the owner. Inevitably, every car owner needs a car insurance to protect his precious cars. It is very important for us to understand what our insurance covers, to choose which coverage suits us best. Basically, there are three kinds of auto insurance coverage. First is the Collision Coverage. Auto insurance collision coverage comes into effect if your car is damaged by an accident, whether you are at fault in the accident or not. In this case, 'accident' covers anything from collision (crash) with another car to single car accidents (i.e. roll-overs) and even damage by potholes. Collision auto insurance, although popular, is relatively high costs coverage. If you have a new car, this coverage is likely a good investment. But if you have a vehicle which you are driving into the ground, it is better for you to take another coverage.
Saturday, August 10, 2013
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Monday, May 13, 2013
Despite their different names, accountants and auditors generally share the same job responsibilities. First of all, they input company expenses and returns on a daily basis. They also examine monthly expense accounts, staying attuned to any operations that are costing the company too much money. Furthermore, during tax season, they fill out state and federal tax returns. They also consult with other managers on company expenses and outline new cost-cutting budget plans.
However, only in small businesses are accounting jobs referred to as simply "accountants" or "auditors." Larger businesses usually employ various subcategories of auditor and accounting jobs. Firstly, they employ public accountants who work with company databases to audit company expenses. Public accountants also consult with corporate managers on budget plans, and may recommend budget cuts in the form of employee lay-offs. Most public accountants are Certified Public Accountants (CPAs), and a good number of them concentrate on corporate tax returns. If they do specialize in tax accounting, they advise company managers on how certain financial decisions may influence their tax returns. Additional duties of public accountants include developing benefits packages, such as retirement plans and insurance programs. In this case, they may be known as payroll accountants.
Other accountants include management or cost accountants. These accountants present regular financial reports to leading company managers, so these managers can be well-informed before making important decisions. Because these accountants focus on the cost of operations, they advise management on the budget cuts that may best benefit the company without sacrificing the company's efficacy. As such, they often do performance evaluation on company operations. For instance, an industrial cost manager may observe a company's manufacturing operations and prepare a report highlighting which operations are wasteful. These accountants usually work side-by-side with project and operations managers for large corporations, keeping these managers informed on their financial situations.
Other types of accounting jobs include federal accounting jobs. These accountants may be Internal Revenue Service (IRS) agents. The federal government also hires accountants to develop budgets for various government departments and agencies. Nevertheless, even local governments employ accountants to create local budgets and manage governmental assets. These accountants, moreover, are fully aware of government regulations concerning accounting. Therefore, they make sure every individual and company within their government's jurisdiction sends regular tax returns. If they notice any non-participating party, or a party that has provided suspicious financial information, they visit that party's home or office to do auditing.
The final major type of accountant is an internal-control auditor, also called a forensic accountant. This is the most recent type of accountant because it arose in response to corporate accounting scandals, such as money-laundering operations. Forensic accountants monitor and implement the internal controls of accounting software used by their company. They advise management on financial transactions that may potentially constitute infractions of state and federal accounting laws. Therefore, they are knowledgeable about both accounting software and government regulations.
Besides security, internal-control auditors also perform waste control by "cleaning up" their company's database system. Like management accountants, they pay close attention to company operations and pinpoint jobs or expenses that are overloading the budget. When reviewing operations, they also monitor compliance with state laws, federal laws, and corporate policies. Because these accountants take on so many different roles, they may also be called information technology auditors or compliance auditors.
All auditor and accountant jobs require deep familiarity with accounting software. This software has now completely replaced ledgers as record-keeping "books." Accountants are generally most familiar with Microsoft Excel and Intuit QuickBooks. When working with this software, accountants enable internal controls and perform accounting analysis. They refer to this software whenever they prepare reports for management or government authorities.
All profitable accountant jobs require the CPA licensure. This licensure is conferred by each state's board of accountancy, though the CPA examination itself is uniform and computer-based. This licensure requires a bachelor's degree in accounting, with each state usually specifying about 150 total semester hours split between accounting and business courses. Some states also require accounting experience, which students can easily fulfill through internships or summer accounting jobs.
Without taking the CPA exam, accountants and auditors will find it hard to advance in their jobs. In fact, any accountant that files a report to the Securities and Exchange Commission (SEC) is required to have a CPA. The CPA exam tests knowledge of Generally Accepted Accounting Procedures (GAAP), business administration, tax accounting, federal regulation, accounting analysis, asset management, and so forth. The CPA exam takes a total of 14 hours to complete, with each of its four parts taking 4.5 hours to complete. This exam is so comprehensive that only half of its takers pass it per year. Once they have passed their CPA, accountants are legally bound to renew it at state-mandated internals. Accountants usually renew their CPA by attending professional-association courses.
As long as the economy continues to grow, accountants and auditors will have little trouble locating accounting job listings. In order to stay competitive, they must keep up-to-date on accounting legislation so they can provide sound guidance to the managers that hire them. They may also want to gain a master's degree in accounting or business administration, and get as much certification as possible from accounting associations. Furthermore, they should hone their internal-controls skills so they can spot potential errors before they inflate into full-blown accounting scandals.
A. Harrison Barnes is the founder and CEO of EmploymentScape, the parent company of more than 90 job-search websites, employment services, recruiting firms and student loan companies. EmploymentScape (originally Juriscape) employs several hundred employees in 14 offices throughout the United States, Asia, and Europe. These companies were literally started from Harrison's garage several years ago after Harrison quit his job.
Harrison has worked for the United States Department of Justice, a federal district judge and the law firms of Quinn Emanuel Urquhart Oliver & Hedges and Dewey Ballantine. After three years of practice, Harrison founded Juriscape, under which he developed a collection of industry-specific job-search websites that revolutionized the way job seekers access employment postings from around the world. Harrison and his companies began serving the legal industry with BCG Attorney Search and LawCrossing.com. Following on the success of those endeavors, the company soon broadened its range to include the 90+ EmploymentCrossing websites, each specific to a particular industry or field. Juriscape changed its name to EmploymentScape in 2007 to reflect the company's broadening focus.
In addition to the EmploymentCrossing websites, EmploymentScape employs top job recruiters nationwide and offers resume development and distribution services through EmploymentAuthority and LegalAuthority.
Harrison's latest venture is Hound.com. Using technology that took two years to develop, Hound is able to pull job listings from company sites throughout the world, giving its members the best opportunities to find and apply to jobs.
Harrison resides in Malibu, California. He is a sought-after motivational speaker [http://www.aharrisonbarnes.com/speaking-coaching-and-workshop-fees] and writes articles relating to the legal community. Harrison is an active philanthropist and advocate for people reaching their full potential in their careers. Given his passion for job seekers and them reaching their full ability, Harrison recently started offering a limited number of coaching engagements to job seekers.
Thursday, May 9, 2013
Qualifications and Regulation
Before getting in accountancy career you need to understand the qualification and regulation depending upon the country you need to practice.
Accountants may be licensed by a variety of organizations and are recognized by titles such as Charter Certified Accountant, Charted Accountant (term used in British Common wealth countries and Ireland for a person who work in all fields of business and finance), Certified Public Accountant (term used for qualified accountants in the United States who have passed the Uniform Certified Public Accountant Examination and met other state education and experience), Certified Management Accountant (This is offered in Australia, Canada and United States), Certified General Accountant (designation representing members of the Certified General Accountants Association of Canada), Certified Practicing Accountant (one of three professional accounting bodies in Australia). Many countries recognize two or more accounting bodies.
If you want to start your accountancy career in Australia then there are four main local professional accountancy bodies
Certified Practicing Accountants
Professional National Accountants
Member of National Institute of Accountants
If you want to start your accountancy career in Austria then the accountancy profession is regulated by the Bilanzbuchhaltungsgesetz 2006
If you want to start your accountancy career in Canada then there are three recognized bodies
Canadian Institute of Chartered Accountants and the provincial and territorial Institutes
Certified General Accountants Association of Canada
Society of Management Accountants of Canada (Certified Management Accountants)
If you want to start your accountancy career in Hong Kong then the accountancy industry is regulated by the Hong Kong Institute of Certified Public Accountants under the Professional Accountants Ordinance.
If you want to start your accountancy career in New Zealand then there is only one local accountancy body
New Zealand Institute of Chartered Accountants
If you want to start your accountancy career in the United Kingdom then there are no license requirements for an individual to practice as an accountant but certain titles requires membership from appropriate professional bodies.
Chartered Certified Accountant must be member of the Association of Charted Certified Accountants.
Chartered Accountants must be member of one of the following Institute of Chartered Accountants in England and Wales or Institute of Chartered Accountants of Scotland or Institute of Chartered Accountants in Ireland or recognized equivalent body from another Commonwealth country like Canada.
Chartered Management Accountant must be a member of the Chartered Institute of Management Accountants.
Chartered Public Finance Accountant must be a member of the Chartered Institute of Public Finance and Accountancy.
International Accountant must be a member of the Association of International Accountants.
United States of America
If you want to start your accountancy career in the United States then legally practicing accountants are Certified Public Accountants, and other non-statutory accountants are Certified Internal Auditors, Certified Management Accountants and Accredited Business Accountants.
Accounting is the process of identifying, measuring and communicating economic information so a user of the information may make informed economic judgments and decisions based on it.
Specialized in Accountancy Career information. Get all the information about accountancy career. If you are looking for accountancy career information please stop in by http://www.accountancycareerworld.com and have a look.
Tuesday, April 30, 2013
In this accounting lecture, we will talk about T-accounts, accounting debits and credits, accounting balances and double entry accounting system.
All accountants know several terms that create basis for any accounting system. Such terms are T-account, debit and credit, and double entry accounting system. Of course, these terms are studied by accounting students all over the world. However, any business person, whether an investment banker or a small business owner, will benefit from knowing them as well. They are easy to grasp and will be helpful in most business situations. Let us take a closer look at these accounting terms.
Accounting records about events and transactions are recorded in accounts. An account is an individual record of increases and decreases in a specific asset, liability, or owner's equity item. Look at accounts as a place for recording numbers related to a certain item or class of transactions. Examples of accounts may be Cash, Accounts Receivable, Fixed Assets, Accounts Payable, Accrued Payroll, Sales, Rent Expenses and so on.
An account consists of three parts:
- title of the account
- left side (known as debit)
- right side (known as credit)
Because the alignment of these parts of an account resembles the letter T, it is referred to as a T account. You could draw T accounts on a piece of paper and use it to maintain your accounting records. However, nowadays, instead of having to draw T accounts, accountants use accounting software (i.e., QuickBooks, Microsoft Accounting, Peachtree, JD Edwards, Oracle, and SAP, among others).
Debit, Credit and Account Balance
In account, the term debit means left side, and credit means right side. These are abbreviated as Dr for debit and Cr for credit. Debit and credit indicate on which side of a T account numbers will be recorded.
An account balance is the difference between the debit and credit amounts. For some types of accounts debit means an increase in the account balance, while for others debit means a decrease in the account balance. See below for a list of accounts and what a debit to such account means:
Asset - Increase
Contra Assets - Decrease
Liability - Decrease
Equity - Decrease
Contribution Capital - Decrease
Revenue - Decrease
Expenses - Increase
Distributions - Increase
Contra Assets - Decrease
Liability - Decrease
Equity - Decrease
Contribution Capital - Decrease
Revenue - Decrease
Expenses - Increase
Distributions - Increase
Credits to the above account types will mean an opposite result.
Double Entry Accounting System
A double entry accounting system requires that any amount entered into the accounting records is shown at least on two different accounts. For example, when a customer pays cash for your product, an account would show the cash received in the Cash account (as a debit) and in the Sales account (as a credit). All debit amounts equal all credit amounts provided the double-entry accounting was properly followed.
Having a double entry accounting system has benefits over regular, one-sided systems. One of such benefits is that the double-entry system helps identify recording errors. As I mentioned, if one amount is entered only once in error, then debits and credits won't balance and the accountant will know that one or more entries were not posted fully. Note, however, that this check will help spot errors, but will not identify all cases of errors. For example, equal debits and credits will not identify an error when an amount was posted twice, but was posted to wrong accounts. Keep this in mind when analyzing causes of errors in accounting records.
Wednesday, April 10, 2013
Adding accounts to Quickbooks is very easy, the warning here is that it is so easy that making a mistake either in placement of the account or the identification of where to put it may be a little deceiving. It is always advisable that you consult a professional to help you as once you add these accounts and begin using them, it can be a long procedure to correct mistakes. And because each business is unique in it's accounts, it may take a little creative maneuvering to best fit your type of business. Having said that, let's look at your different options in adding accounts.
I. Income Accounts
There may be several ways that your business receives income. (this is where the help of a ProAdvisor comes in) For example if you are a service industry business, let's use a lawn care company as an example. The overall easy way to handle this is to enter ALL income into one account. However, this doesn't help you as a business owner decide which of your services is more profitable than another. You may not care about that, but it only takes another few minutes of effort to get it right, so let's make sure we do so. Create an account for income for lawn maintenance, another for landscape design and yet another for pest control or another similar service. Create a parent account named Lawn Services and a sub account for each of the areas you earn income in. Upon entering these sub-accounts you will see a box labeled sub-account of, check that box and type Lawn Services. The description, note and tax-line mapping boxes are optional, for the best results however, at least utilize the tax-line mapping and an income account will more than likely fit the first category listed which is Income: Gross Sales or Services. Consult your tax professional for more help with this area.
II. Expense Accounts
The expense window looks identical to the income in every way. I highly recommend a wise use of sub-accounts in the expense accounts area as well. For example, grouping your electrical, water and phone bills under utilities is what a lot of businesses do, however, what happens when you add a cell phone?
I would create a parent account for utilities and sub-accounts for power, water, phone, and other utilities. I would also suggest doing the same with advertising expenses, having one parent account for advertising and sub-accounts for signs, yellow pages ads, internet ads, and more so you can keep more careful track of your cash flow.
When you get to payroll expenses, you are definitely going to need to use sub-accounts appropriately and create sub-accounts for FICA payable - Company, Social Security Payable - Company, Worker's Comp, etc. If you do not use Intuit's Payroll services, that's okay, but it increases the risk of mistakes in transmission of information from the payroll companies' to the Quickbooks files.
III. Fixed Assets
There is a step by step procedure in entering fixed assets into Quickbooks and a detailed explanation of how to categorize your fixed assets. Fixed Assets include buildings, land, Machinery, vehicles and Accumulated Depreciation. The only difference in the Fixed Assets window is that the Tax-Line Mapping is automatically entered for you.
IV. Bank Accounts
In Quickbooks a Bank Account isn't always necessarily an actual bank account. When entering a regular bank account whether it's checking or savings, Quickbooks will ask for the opening balance as of a certain date. (If this is a new account, the opening balance isn't necessary, it will be $0.00) For a more accurate picture of your business' financial situation, and to ensure an accurate reconciliation of your bank account, enter the opening balance, which will be the ending balance of the previous month. If this account was used for any business transactions prior to the date you install Quickbooks, it would be a good idea to have a Professional help you enter these transactions accurately.
When is a bank account NOT a bank account? If your business is using petty cash system, (to make change for customers, etc) it is best to set up Petty Cash as a separate bank account so that you can transfer funds from Petty Cash to Undeposited Funds when necessary.
What if you have a customer with whom you have an agreement to trade your services/products with theirs? In this case, you can create a bank account called Trade or Barter and deposit the value of your products/services to offset those of your customers. Neither one are actually bank accounts, but they make it easy to keep track of those 'creative' transactions.
A Loan account keeps track of the amount you owe on loans from those who you owe money to. This is NOT a long term liability account, this is money lent to the business by others and which you intend on paying back within the year. You have use of the funds, which is an asset, and you owe the loaner, which is a liability. If you need to enter a loan for a vehicle, building, etc, it needs to be in the Long Term Liability accounts.
VI. Credit Card Accounts
You must add a credit card to your account list to gain access to the Enter Credit Card Charges feature on the Quickbooks home menu. Credit Cards can be used to pay for expenses, items or bills. When using Credit Cards to pay bills, one common mistake business owners make is not choosing the correct account to pay the bill out of. If you are using more than one Credit Card, take it slow and make sure that your payments and credits to the account are appropriately applied or reconciliations will be a nightmare and a half.
You are given the option of being able to enter the account number, expiration date and more as you are entering the card for the first time. As long as you don't have a situation where innumerable people have access to your Quickbooks files, it is perfectly safe to enter this information, if you do have that situation, consider hiring someone else or restricting access to others on your Quickbooks network.
VII. Equity Accounts
An equity account includes owner's draw, owner's contributions, etc (these categories change names but not function, depending on the legal formation of the company). This is the money the business owner invests in order to begin the company and the subsequent money they have to draw from in order to keep the company running. The retained earnings account is an equity account that is added by Quickbooks at year end when the revenue and expenses are calculated. The description that is given this account by Quickbooks is "undistributed earnings of the company". In the case of a company just beginning to use Quickbooks, the account can be created manually for previous years balances in another accounting software system by creating the account manually and entering in the opening balance from the previous year.
The rest of the accounts are going to be examined in a separate article where we will discuss common mistakes made in entering these accounts and the occasional symbiotic relationship these accounts have with one another.
David Roberts, CFE, CQBPA, MBA, lives in Kissimmee, Florida with four girls, three dogs, two snakes and one wife. He has been a member of the ACFE for four years and has been studying fraud for longer than that. He is the owner of Homesoon Accounting Services which specializes in Quickbooks Consultations and Fraud Prevention and Detection.
Sunday, March 24, 2013
Accounting software is a system of recording financial transactions on a computer across a full range of accounting options almost invariably dependent upon the size of business being catered for. Financial software can vary from a several million pound solution for major public companies to simple managed lists of income and expenses.
The requirements from accounts software are diverse with the most complex and comprehensive financial accounting packages incorporating financial reporting information and managed by teams of qualified accountants supported by accounts clerks, bookkeepers and substantial input from automated data sources. At the other end of the scale a self employed sole trader might use accounting software themselves and produce a set of financial accounts for the year in an afternoon.
Different accounting standards are required from the software packages dependent upon the fitness for purpose and client needs. Double entry bookkeeping automated through a database system and probably arranged in financial modules would normally be the choice of the majority of public companies. Single entry bookkeeping would not be an acceptable accounting solution for a limited company due to audit requirements and statutory obligations.
Single entry bookkeeping does however have its place in the market place for the smaller less complex businesses who maintain financial control through a close intimate knowledge of every financial transaction. The main objective of a sole trader is more likely to be the production of the tax accounts and complete the periodic and annual tax return forms.
The most sophisticated level of financial software in the largest companies mirrors the accounting functions in those organisations with various modules for accounts receivable, accounts payable, stock control, general ledger and fixed assets. These accounting modules may also be integrated with other business functions such as production and dispatch functions and also divided into separate modules within the finance function.
In larger companies the sales daybook and data entry of sales turnover would often be the responsibility of one department while the accounts receivable function might be split with a specialist credit control function within that accounting module. A further division may also include sales administration and customer records. Similarly the accounts payable function might be split between the purchasing department, accounts purchase invoice department and a legal function for overdue payments.
Accounting software for smaller companies and organisations is commonly a system of data entry of prime transactions which include sales income, purchase expenses and cash and bank transactions. The entry of these prime documents being to a database which automates the double entry bookkeeping principles and produces both accounts receivable, accounts payable and general ledger databases.
Some accounting knowledge is usually required to operate a database accounting software system and that financial knowledge is usually available within the company as most companies that use database accounting software also employ a bookkeeper or accounts clerks to input data and in slightly larger small companies also qualified accountants to manage the accounting function.
The need for accounting knowledge in a database system is partially to understand the data entry principles and the relevancy of the rules that need to be followed but essentially understanding of accounting principles is required to understand what is happening ton the information after input. And most important, a qualified accountant has the financial knowledge, training and experience to know what the system should be producing and how to query the database to retrieve that information.
In addition to inputting the prime income and expenditure details the most benefit of a database system is the level of control the information it contains can provide the company management and financial directorship. The accounting function also has the security of producing trial balances, periodic profit and loss accounts, balance sheets and other financial and statements for tax and control purposes.
Small business accounting packages requiring little or no accounting knowledge are available.
Small limited companies must obtain accounting software based upon double entry bookkeeping principles as in addition to producing a profit and loss account and a trial balance to demonstrate accuracy and integrity of the financial records plus a balance sheet is required for reporting purposes. Accounting standards require the limited company to have a system of financial control and accounting software is an essential tool in achieving this.
Some accounting knowledge either from the management or outsourcing the bookkeeping services is usually required with even the simplest database accounting solutions even if this requires the understanding of what accounts receivable ledgers, accounts payable ledger and control accounts mean.
There are other possibilities and those businesses with a minimum of accounting knowledge can consider spreadsheet based accounting software. Spreadsheet accounts are less flexible and often do not have the range of options a database system has due to the lack of database queries available. These disadvantages of flexibility being compensated by the fact that all entries are visible, transparent and changes can be made more easily.
Financially at the sole trader and self employed end of the business spectrum then the requirements from accounting software may be completely different. Gone are the sophistication of control accounts, trial balances and many aspects of financial control. The most important aspect of self employed accounting is often to produce a set of accounts for tax purposes.
Self employed small business that do not require a balance sheet can use accounting software based upon single entry bookkeeping rather than double entry and with the reduced requirement for financial control then less financial queries to the system are required. In these respects the simpler an accounting solution the better and in this market an accounting solution written on spreadsheets that can produce the net taxable profit would meet the requirements.
Thursday, March 21, 2013
Accountants prepare trial balance to check the correctness of accounts. If total of debit balances does not agree with the total of credit balances, it is a clear-cut indication that certain errors have been committed while recording the transactions in the books of original entry or subsidiary books. It is our utmost duty to locate these errors and rectify them, only then we should proceed for preparing final accounts. We also know that all types of errors are not revealed by trial balance as some of the errors do not effect the total of trial balance. So these cannot be located with the help of trial balance. An accountant should invest his energy to locate both types of errors and rectify them before preparing trading, profit and loss account and balance sheet. Because if these are prepared before rectification these will not give us the correct result and profit and loss disclosed by them, shall not be the actual profit or loss.
All errors of accounting procedure can be classified as follows:
1. Errors of Principle
When a transaction is recorded against the fundamental principles of accounting, it is an error of principle. For example, if revenue expenditure is treated as capital expenditure or vice versa.
2. Clerical Errors
These errors can again be sub-divided as follows:
(i) Errors of omission
When a transaction is either wholly or partially not recorded in the books, it is an error of omission. It may be with regard to omission to enter a transaction in the books of original entry or with regard to omission to post a transaction from the books of original entry to the account concerned in the ledger.
(ii) Errors of commission
When an entry is incorrectly recorded either wholly or partially-incorrect posting, calculation, casting or balancing. Some of the errors of commission effect the trial balance whereas others do not. Errors effecting the trial balance can be revealed by preparing a trial balance.
(iii) Compensating errors
Sometimes an error is counter-balanced by another error in such a way that it is not disclosed by the trial balance. Such errors are called compensating errors.
From the point of view of rectification of the errors, these can be divided into two groups :
(a) Errors affecting one account only, and
(b) Errors affecting two or more accounts.
Errors affecting one account
Errors which affect can be :
(a) Casting errors;
(b) error of posting;
(c) carry forward;
(d) balancing; and
(e) omission from trial balance.
Such errors should, first of all, be located and rectified. These are rectified either with the help of journal entry or by giving an explanatory note in the account concerned.
Stages of correction of accounting errors
All types of errors in accounts can be rectified at two stages:
(i) before the preparation of the final accounts; and
(ii) after the preparation of final accounts.
Errors rectified within the accounting period
The proper method of correction of an error is to pass journal entry in such a way that it corrects the mistake that has been committed and also gives effect to the entry that should have been passed. But while errors are being rectified before the preparation of final accounts, in certain cases the correction can't be done with the help of journal entry because the errors have been such. Normally, the procedure of rectification, if being done, before the preparation of final accounts is as follows:
(a) Correction of errors affecting one side of one account Such errors do not let the trial balance agree as they effect only one side of one account so these can't be corrected with the help of journal entry, if correction is required before the preparation of final accounts. So required amount is put on debit or credit side of the concerned account, as the case maybe. For example:
(i) Sales book under cast by Rs. 500 in the month of January. The error is only in sales account, in order to correct the sales account, we should record on the credit side of sales account 'By under casting of. sales book for the month of January Rs. 500".I'Explanation:As sales book was under cast by Rs. 500, it means all accounts other than sales account are correct, only credit balance of sales account is less by Rs. 500. So Rs. 500 have been credited in sales account.
(ii) Discount allowed to Marshall Rs. 50, not posted to discount account. It means that the amount of Rs. 50 which should have been debited in discount account has not been debited, so the debit side of discount account has been reduced by the same amount. We should debit Rs. 50 in discount account now, which was omitted previously and the discount account shall be corrected.
(iil) Goods sold to X wrongly debited in sales account. This error is effecting only sales account as the amount which should have been posted on the credit side has been wrongly placed on debit side of the same account. For rectifying it, we should put double the amount of transaction on the credit side of sales account by writing "By sales to X wrongly debited previously."
(iv) Amount of Rs. 500 paid to Y, not debited to his personal account. This error of effecting the personal account of Y only and its debit side is less by Rs. 500 because of omission to post the amount paid. We shall now write on its debit side. "To cash (omitted to be posted) Rs. 500.
Correction of errors affecting two sides of two or more accounts
As these errors affect two or more accounts, rectification of such errors, if being done before the preparation of final accounts can often be done with the help of a journal entry. While correcting these errors the amount is debited in one account/accounts whereas similar amount is credited to some other account/ accounts.
Correction of errors in next accounting period
As stated earlier, that it is advisable to locate and rectify the errors before preparing the final accounts for the year. But in certain cases when after considerable search, the accountant fails to locate the errors and he is in a hurry to prepare the final accounts, of the business for filing the return for sales tax or income tax purposes, he transfers the amount of difference of trial balance to a newly opened 'Suspense Account'. In the next accounting period, as and when the errors are located these are corrected with reference to suspense account. When all the errors are discovered and rectified the suspense account shall be closed automatically. We should not forget here that only those errors which effect the totals of trial balance can be corrected with the help of suspense account. Those errors which do not effect the trial balance can't be corrected with the help of suspense account. For example, if it is found that debit total of trial balance was less by Rs. 500 for the reason that Wilson's account was not debited with Rs. 500, the following rectifying entry is required to be passed.
Difference in trial balance
Trial balance is affected by only errors which are rectified with the help of the suspense account. Therefore, in order to calculate the difference in suspense account a table will be prepared. If the suspense account is debited in' the rectification entry the amount will be put on the debit side of the table. On the other hand, if the suspense account is credited, the amount will be put on the credit side of the table. In the end, the balance is calculated and is reversed in the suspense account. If the credit side exceeds, the difference would be put on the debit side of the suspense account. Effect of Errors of Final Accounts
1. Errors effecting profit and loss account
It is important to note the effect that an en-or shall have on net profit of the firm. One point to remember here is that only those accounts which are transferred to trading and profit and loss account at the time of preparation of final accounts effect the net profit. It means that only mistakes in nominal accounts and goods account will effect the net profit. Error in the these accounts will either increase or decrease the net profit.
How the errors or their rectification effect the profit-following rules are helpful in understanding it :
(i) If because of an error a nominal account has been given some debit the profit will decrease or losses will increase, and when it is rectified the profits will increase and the losses will decrease. For example, machinery is overhauled for Rs. 10,000 but the amount debited to machinery repairs account -this error will reduce the profit. In rectifying entry the amount shall be transferred to machinery account from machinery repairs account, and it will increase the profits.
(il) If because of an error the amount is omitted from recording on the debit side of a nominal account-it results in increase of profits or decrease in losses. The rectification of this error shall have reverse effect, which means the profit will be reduced and losses will be increased. For example, rent paid to landlord but the amount has been debited to personal account of landlord-it will increase the profit as the expense on rent is reduced. When the error is rectified, we will post the necessary amount in rent account which will increase the expenditure on rent and so profits will be reduced.
(iil) Profit will increase or losses will decrease if a nominal account is wrongly credited. With the rectification of this error, the profits will decrease and losses will increase. For example, investments were sold and the amount was credited to sales account. This error will increase profits (or reduce losses) when the same error is rectified the amount shall be transferred from sales account to investments account due to which sales will be reduced which will result in decrease in profits (or increase in losses).
(iv) Profit will decrease or losses will increase if an account is omitted from posting in the credit side of a nominal or goods account. When the same will be rectified it will increase the profit or reduce the losses. For example, commission received is omitted to be posted to the credit of commission account. This error will decrease profits ( or increase losses) as an income is not credited to profit and loss account. When the error will be rectified, it will have reverse effect on profit and loss as an additional income will be credited to profit and loss account so the profit will increase ( or the losses will decrease). If due to any error the profit or losses are effected, it will have its effect on capital account also because profits are credited and losses are debited in the capital account and so the capital shall also increase or decrease. As capital is shown on the liabilities side of balance sheet so any error in nominal account will effect balance sheet as well. So we can say that an error in nominal account or goods account effects profit and loss account as well as balance sheet.
2. Errors effecting balance sheet only
If an error is committed in a real or personal account, it will effect assets, liabilities, debtors or creditors of the firm and as a result it will have its impact on balance sheet alone. because these items are shown in balance sheet only and balance sheet is prepared after the profit and loss account has been prepared. So if there is any error in cash account, bank account, asset or liability account it will effect only balance sheet.
Wednesday, March 6, 2013
Accounting vs. Book-keepingBook-keeping concerns itself with the recording (correctly and in a set of books) of those transactions that result in the transfer of money or money's worth. Whereas accounting is comprehensive in perspective. It extends to classifying, summarizing, presenting and even analyzing accounting information .
Accounting vs. Accountancy
Body of knowledge (consisting of principles, postulates, assumptions, conventions, concepts and rules) governing the science of recording classifying and analyzing financial transactions is accounting. Whereas the practice and art of the science of accounting is termed as accountancy.To meet the ever increasing demands made on accounting by different interested parties (such as owners, management, creditors, taxation authorities etc.) the various branches have come into existence. Financial AccountingThe object of financial accounting is to ascertain the result (profit or loss) of business operations during the particular period and to state the financial position (Balance Sheet) as on a date at the end of the period.
The object of cost accounting is to find out the cost of goods produced or services rendered by a business. It also helps the business in controlling the costs by indicating avoidable losses and wastes.Management AccountingThe object of management accounting is to supply relevant information at appropriate time to the management to enable it to take decision and effect control.In this web primer, we are concerned only with financial accounting. The objects of financial accounting as stated above can be achieved only by recording the financial transactions in a systematic manner according to a set of principles. The recorded information has to be classified, analyzed and presented in a manner in which business results and financial position can be ascertained.
Uses of Accounting
Accounting plays important and useful role by developing the information for providing answers to many questions faced by the users of accounting information.
(1) How good or bad is the financial condition of the business?
(2) Has the business activity resulted in a profit or loss?
(3) How well the different departments of the business have performed in the past?
(4) Which activities or products have been profitable?
(5) Out of the existing products which should be discontinued and the production of which commodities should be increased.
(6) Whether to buy a component from the market or to manufacture the same?
(7) Whether the cost of production is reasonable or excessive?
(8) What has been the impact of existing policies on the profitability of the business?
(9) What are the likely results of new policy decisions on future earning capacity of the business?
(10) In the light of past performance of the business how it should plan for future to ensure desired results ?
Above mentioned are few examples of the types of questions faced by the users of accounting information. These can be satisfactorily answered with the help of suitable and necessary information provided by accounting.
Besides, accounting is also useful in the following respects :-
(1) Increased volume of business results in large number of transactions and no businessman can remember everything. Accounting records obviate the necessity of remembering various transactions.
(2) Accounting record, prepared on the basis of uniform practices, will enable a business to compare results of one period with another period.
(3) Taxation authorities (both income tax and sales tax) are likely to believe the facts contained in the set of accounting books if maintained according to generally accepted accounting principles.
(4) Cocooning records, backed up by proper and authenticated vouchers are good evidence in a court of law.
(5) If a business is to be sold as a going concern then the values of different assets as shown by the balance sheet helps in bargaining proper price for the business.
Limitations of Financial Accounting
Advantages of accounting discussed in this section do not suggest that accounting is free from limitations.
Following are the limitations:
Financial accounting permits alternative treatmentsAccounting is based on concepts and it follows " generally accepted principles" but there exist more than one principle for the treatment of any one item. This permits alternative treatments with in the framework of generally accepted principles. For example, the closing stock of a business may be valued by anyone of the following methods: FIFO (First-in- First-out), LIFO (Last-in-First-out), Average Price, Standard Price etc., but the results are not comparable.
Financial accounting does not provide timely information
It is not a limitation when high powered software application like HiTech Financial Accenting are used to keep online and concurrent accounts where the balance sheet is made available almost instantaneously. However, manual accounting does have this shortcoming.
Financial accounting is designed to supply information in the form of statements (Balance Sheet and Profit and Loss Account) for a period normally one year. So the information is, at best, of historical interest and only 'post-mortem' analysis of the past can be conducted. The business requires timely information at frequent intervals to enable the management to plan and take corrective action. For example, if a business has budgeted that during the current year sales should be $ 12,00,000 then it requires information whether the sales in the first month of the year amounted to $ 10,00,000 or less or more?
Traditionally, financial accounting is not supposed to supply information at shorter interval less than one year. With the advent of computerized accounting now a software like HiTech Financial Accounting displays monthly profit and loss account and balance sheet to overcome this limitation. Financial accounting is influenced by personal judgments'Convention of objectivity' is respected in accounting but to record certain events estimates have to be made which requires personal judgment. It is very difficult to expect accuracy in future estimates and objectivity suffers. For example, in order to determine the amount of depreciation to be charged every year for the use of fixed asset it is required estimation and the income disclosed by accounting is not authoritative but 'approximation'.
Financial accounting ignores important non-monetary information
Financial accounting does not consider those transactions of non- monetary in nature. For example, extent of competition faced by the business, technical innovations possessed by the business, loyalty and efficiency of the employees; changes in the value of money etc. are the important matters in which management of the business is highly interested but accounting is not tailored to take note of such matters. Thus any user of financial information is, naturally, deprived of vital information which is of non-monetary character. In modern times a good accounting software with MIS and CRM can be most useful to overcome this limitation partially.
Financial Accounting does not provide detailed analysis
The information supplied by the financial accounting is in reality aggregates of the financial transactions during the course of the year. Of course, it enables to study the overall results of the business the information is required regarding the cost, revenue and profit of each product but financial accounting does not provide such detailed information product- wise. For example, if business has earned a total profit of say, $ 5,00,000 during the accounting year and it sells three products namely petrol. diesel and mobile oil and wants to know profit earned by each product Financial accounting is not likely to help him unless he uses a computerized accounting system capable of handling such complex queries. Many reports in a computer accounting software like HiTech Financial Accounting which are explained with graphs and customized reports as per need of the business overcome this limitation.
Financial Accounting does not disclose the present value of the business
In financial accounting the position of the business as on a particular date is shown by a statement known as 'Balance Sheet'. In Balance Sheet the assets are shown on the basis of "Continuing Entity Concept. Thus it is presumed that business has relatively longer life and will continue to exist indefinitely, hence the asset values are 'going concern values.' The 'realized value' of each asset if sold to-day can't be known by studying the balance sheet.
Wednesday, February 27, 2013
In the UK anyone receiving earned income which is not taxed under the employers PAYE system is technically self employed. Anyone who is self employed and running a business in the UK must register that business with HM Revenue and Customs within 3 months of starting that self employed business and failure to do so can lead to penalty fines.
All self employed businesses must keep records of the financial transactions and submit these accounts annually to HM Revenue and Customs in the format of the self assessment tax return which are supplementary pages included in the self employed annual tax return.
Different standards for accounting by self employed business are applicable compared to the accounting requirements of a limited liability company and consequently much simpler Accounting Software can be applied. Accounting Software for a limited company invariably requires a double entry system of accounting that produces not just a profit and loss account but also a balance sheet. The Accounting Software has to deal with business bank accounts, debtors and creditors and produce reconcilable results.
While advisable for self employed businesses to maintain a separate bank account it is not an essential requirement. The Accounting Software used by anyone self employed should keep accurate records of fixed assets although it is not essential that this Accounting Software also produces a balance sheet. With these factors in mind Accounting Software for the self employed can be much simpler and greatly advantageous if that Accounting Software also produces the numerous and sometimes onerous burden of HM Revenue and Customs tax returns and working papers.
Self Employed Accounting Software Requirements
Accounting Software for anyone Self Employed does not have to be double entry. The Accounting Software can be a single entry system which makes the value of using Accounting Software based upon excel spreadsheets feasible and due to the simplicity highly desirable. Such Accounting Software being excel based is fast and easy to use, utilising all the benefits and advantages excel offers. Accounting Software that is also highly visible at the click of a button. Accounting Software on a database hides the financial transactions that the Accounting Software has to query to retrieve the required information. It is this element of an Accounting Software database that often requires some technical accounting knowledge to operate efficiently. Accounting Software written on excel spreadsheets is, due to its visibility, much easier to use and understand and requires little or no accounting experience.
Accounting Software written on excel spreadsheets makes an ideal solution for the self employed businessman. Good financial records are the key to the success of any self employed business and especially to the value of Accounting Software. A quality Accounting Software package is an essential component of your business to identify potential problem areas and capitalise on success to drive the business forward.
Accounting Software and HM Revenue and Customs Returns
Different types of Accounting Software are available for the Self Employed and some of this software has been specifically designed to cater for the precise size and requirements of the self employed business. There are basic Accounting Software packages available for the self employed business that is not vat registered and have no employees. Standard Accounting Software packages for the self employed business that is vat registered. The vat threshold limit at which businesses are liable for vat is £61,000 up to April 2007 and subject to possible changes after that date. Advanced and more sophisticated Accounting Software for the self employed who also employ staff are available with integrated payroll software included in the Accounting Software packages.
The best Accounting Software will not only produce your self employed financial accounts but also produce the HM Revenue and Customs returns. Accounting Software that has automated the vat returns each quarter, Payroll Software that completes the time consuming P11 employee deductions working papers and simplifies the P60 year end certificates and P35 employers' annual paye return.
And most crucially Accounting Software that automates the Self Assessment tax return.
Accounting Software and Self Assessment Tax Returns
The Self Assessment tax return is a complex document for the initiated. It doesn't have to be, for a small business with turnover under £15,000 the self assessment tax return can be completed by entering totals of self employed sales, expenses and net profit on page one. For larger self employed businesses more complex calculations are required. Capital Allowances, balancing charges, base periods and expense analysis are beyond many self employed. Self employed businessmen are experts in their field of operations and often require help with these accounting based elements that an accountant or Accounting Software can provide.
The best Accounting Software can take the simple lists of financial transactions and by clever use of formulae built into excel spreadsheets transform the year end experience by automating the production of the self assessment tax return. It isn't impossible, if a calculation can be made mathematically then a quality Accounting Software package can automate the process using formulae within excel to produce the calculations and offer the Self Employed businessman an automated Self Assessment Tax Return.
A function that Accounting Software can do at a fraction of the price an accountant might charge for this service. Accounting Software for the Self Employed should produce the Self Assessment tax return as the end product. The Self Assessment tax return is the Self Employed end product of his financial endeavours and therefore the Self Assessment tax return has to be the end product of any quality Accounting Software.
Wednesday, February 6, 2013
While installing your new accounting software you have most likely been asked whether you would like to use one of the default charts of accounts included with the program or develop your own. Unless you are very familiar with setting up a set of financial books you will want to choose from one of the selections offered. And even if you have the experience choosing one of the defaults will save you a great deal of time. But you may ask what if I don't need all these accounts and how do I know which accounts I should keep. And should I use a numbering system or not? Let me help you by explaining just what a Chart of Accounts is and how to adjust the default list to your needs.
First of all a Chart of Accounts in its simplest definition is a list of accounts used to track all financial transactions that flow through a business. This list is typically broken in to eight segments: Assets, Liabilities, Equity, Income, Cost of Goods Sold, General and Administrative Expenses, Other Income and Other Expenses. You might see Equity referred to as Capital, Cost of Goods Sold referred to as Direct Costs, and General and Administrative Expenses referred to as Expenses. Companies that wish to track Sales Expenses such as commissions, salaries and related expenses of sales personnel and other costs related directly to sales activity might also add a Sales Expense segment.
The first three segments represent the accounts you will find on a Balance Sheet and they will be broken down into sub-segments. Under Assets you will find sub-segments for Current Assets, Fixed Assets and sometimes Other Assets. Current Assets accounts are used for assets that can be readily liquidated into cash, such as cash, investments, accounts and notes receivables, and deposits. You may choose when setting up more than one cash account or receivable account to create a further segment. This will allow you to summarize all your cash accounts, for example, on your balance sheet while keeping a separate recording account for each bank account. Fixed Assets accounts are used to record the cost of items purchased that have a useful life that extends beyond one year. The Fixed Assets segment also includes contra-accounts (reduction of the value of an asset) that are used to record the depreciation of your fixed assets. These contra-accounts are typically named "Allowance for Depreciation - (name of type of fixed asset)". You should have a fixed asset account and corresponding depreciation account for each type of fixed asset you purchase. Some examples are vehicles, office equipment and furniture, building or leasehold improvements. The Other Assets segment is used for all other types of assets.
Likewise the Liabilities segment is broken into Current Liabilities and Long-Term Liabilities. Current liabilities represent the company's liabilities that are to be paid in less than one year. Examples are Accounts Payable, Payroll Tax Liabilities, and Note Payables. Long Term Liabilities represent liabilities that are to be paid over a longer term than one year such as mortgages, vehicles loans and other long term debt.
The third segment of the balance sheet is the Equity, or Capital, segment. This segment consists of accounts that record the owner's, partners or shareholders investments, draws of profits taken from the company by the investors and the net earnings of the company. For each owner or partner within a business entity there should be an individual investment account and draw account. When a company is incorporated than the capital investment by the shareholders is recorded into capital stock accounts. These accounts may be broken down further if different types of stock are issued. The Retained Earnings account is used to record the profit, or loss, the company has earned from the beginning of its existence. Usually you will not be posting to this account, as this is the account your software program will use to close out your end of year income statement accounts.
Moving on to the Income Statement segments, you will want to have in the Income segment accounts to record each type of income you earn in the course of your business. You may want to break out your sales income into more than one account if you have more than one type of service or product. For example if you are a general contractor you may want to track how sales compare between remodeling and new homes.
Cost of Goods Sold or Direct Costs are those expenses that relate directly to the sale of a product or service. Again if you are a contractor these typically would include payroll and payroll expenses of your workers, materials, subcontractors, permits, general liability and workman's compensation insurance, equipment rentals, etc. They would not include rent or office supplies.
General and Administrative Expenses are business expenses incurred that are not dependent on the sale of a product or service. They include rent, phone, office payroll and payroll expenses, employee benefits, office supplies, utilities, etc.
Other Income typically includes non-sales income such as interest income. Federal and State Income Taxes and any related interest and penalty expenses are what you will find in the Other Expense segment.
Now that you have an idea of how a Chart of Accounts if typically set up, how do you pick and choose what accounts to keep and which to delete? Print out the default list and go through it choosing the accounts you think you will need. You will need at least one cash account, an account receivable and accounts payable account. If you do not have employees and don't ever expect to have any than by all means delete all accounts with payroll in the name. If your company will not be making investments than delete all accounts having to do with investments under Current Assets. You get the picture - however it is easier to keep what you think might be needed sometime in the future. Your program may not let you delete some accounts because they are being used in conjunction with another account or accounts. Let them be. You can also edit account names - as long as the new account name belongs in the same segment as the one you are replacing.
Wednesday, January 16, 2013
An accountant's job entails working to ensure that business firms and individuals are keeping good records and paying taxes properly and on time. Though the accountant job description for some accounting positions may be simple, other accountant job descriptions are not quite as clear because of the number of duties that are required.
In general, an accountant performs vital functions to businesses, as well as individuals, of all types by offering a very wide array of business and accounting services, including public, management and government accounting, as well as internal auditing. These four major fields of accounting, and in addition to having a minimum of a bachelor's degree, each has a separate accountant job description.
1. Public Accountant
A public accountant job description can be summed up in what most people envision as "typical" accountant's work. It involves performing a broad range of accounting, auditing, tax, and consulting activities for their clients, which may be corporations, governments, nonprofit organizations, and individuals. Specialties in public accounting are often chosen. For example, a public accountant may choose to concentrate on tax matters, such as advising companies about the tax advantages and disadvantages of certain business decisions and preparing individual income tax returns. Other public accountants may choose areas such as compensation or employee health care benefits, or may design accounting and data processing systems. Still other public accountants may choose to specialize in auditing financial statements and inform investors and authorities that statements have been correctly prepared and reported. Public accounts are usually Certified Public Accountants (CPAs), and generally own their own businesses or work for public accounting firms.
2. Management Accountant
Another accountant job description is that of a management accountant. Also called a cost, managerial, industrial, corporate, or private account, management accountants record and analyze the financial information of the companies for which they work. The management accountant job description includes a detailed listing of responsibilities, such as budgeting, performance evaluation, cost management, and asset management. Management accountants are often a part of executive teams involved in strategic planning or the development of new products, where they analyze and interpret financial information that corporate executives need in order to make sound business decisions. They also prepare financial reports for other groups, including stock holders, creditors, regulatory agencies, and tax authorities. Management accountants are usually a part of an accounting department, employed a large company, and may work in many areas that may include financial analysis, planning, budgeting, and cost accounting.
3. Government Accountant
A government accountant works in the public sector, maintaining and examining the records of government agencies and auditing private businesses and individuals whose activities are subject to government regulation and/or taxation. This accountant job description, while detailed, is much more specialized. Government accountants are employed by Federal, State, or local governments, and work to guarantee that revenues are received and expenditures are made in accordance with laws and regulations. Those employed by the Federal government may work as Internal Revenue Services agents or in financial management, financial institution examination, or budget analysis and administration.
4. Internal Auditor Accountant
The accountant job description of an internal auditor can basically be summarized by the job title. Internal auditors verify the accuracy of their organization's internal records, and check for mismanagement, waste, or fraud. It is an increasingly important area of accounting, because internal auditors examine and evaluate their firms' financial and information systems, management procedures, and internal controls to ensure that records are accurate and controls are adequate to protect against fraud and waste. They also review company operations, evaluating their efficiency, effectiveness, and compliance with corporate policies and procedures, laws, and government regulations. The accountant job description of an internal auditor can vary with different companies, and may include job duties such as electronic data processing, environmental auditing, engineering, legal auditing, insurance reviews, banking, and health care auditing.
Accountants in all four areas can work for a company, or can be employed by an accounting firm, which would in turn be hired by a company for consulting. An accountant can also be self-employed, and provide accounting services to individuals, businesses, or both.
Most accounting jobs include an accountant job description that requires a bachelor's degree, at minimum, in accounting or a related field, and some accountant job descriptions might include the requirement of a master's degree or Certified Public Account (CPA) certification, obtained through a four-part, Uniform CPA Explanation prepared by the American Institute of Certified Public Accountants (AICPA). While the two-day CPA examination is rigorous, and only about 25 percent of those taking the exam pass every part they attempt, CPA certification can greatly assist in the rate of pay received, and in most states, the examination can be taken in two parts, which may assist in preparing for and passing the exam.
According to the United States Department of Labor, employment of accountants and auditors is expected to grow at a faster than average rate, for all accounting occupations from all accountant job descriptions mentioned, through the year 2014. This is due to an increase in the number of businesses nationwide, changing financial laws and regulations, and increased scrutiny of company finances. In addition to these reasons for new accounting jobs opening up, there will also be a need to replace accountants and auditors who will retire or transfer to other occupations.
The field is also becoming more specialized due to technology and new, accurate accounting and auditing software experience becoming a crucial addition to an accountant job description. An accountant job description may include, in addition to educational and technological requirements, strong interpersonal and communication skills, simply due to the fact that most accountants work on teams with others from different backgrounds, and will need the ability to communicate accounting and financial information clearly and concisely.
Regardless of one's qualifications, competition in the accounting field will remain strong for the most prestigious jobs, as well as for obtaining clients for those accountants that are self-employed.
Tuesday, January 8, 2013
OBJECTIVES OF WRITING THIS ARTICLE: Forensic accounting(F.A.) has come into limelight due to rapid increase in financial frauds and white-collar crimes. But it is largely untrodden area in India.The integration of accounting, auditing and investigative skills creates the speciality know as F.A.The opportunities for the Forensic Accountants are growing fast;they are being engaged in public practice and are being employed by insurance companies, banks, police forces, government agencies etc.This article seeks to examine the meaning and nature, activities and services rendered, core knowledge and personal skills required for forensic accounting as a specialized field in accountancy profession. Indeed there is a future in F.A. as a separate niche consulting.
The lack of respect and belief in India's law enforcement agencies and the rate at which white-collar crimes have increased has prompted the development of Forensic Accounting in India. The fraud detecting agencies seems to lack time and devotion needed for detecting and prevention of errors and fraud. According to a large global accounting firm, the market is sufficiently big enough to maintain an unit devoted entirely towards "forensic accounting". Many large as well as small accounting firms as well as the tiny firms have inculcated or rather developed separate forensic accounting departments.
We were of the belief that detection and prevention of frauds or white-collar crimes is part of conventional accounting function. It was thought that the frauds, both internal as well as external has be to detected by the auditors through their periodic audit. Now it is crystal clear that auditors can only check for the compliance of a company's books to generally accepted accounting principles, auditing standards and company policies. Hence the need was felt to detect the frauds in companies that are suspected to be engaged in fraudulent transactions. This field of accounting is known as "forensic accounting".
The litmus test of investigation, first introduced by the ever great Sherlock-Homes(considered by many as the father of Forensic Accounting) is perhaps the first ever application of forensic accounting. Though, the contribution of the other few great historians to the field of forensic accounting cannot be overlooked. They used various tricks to investigate various crimes.
F.A. is a specialized a area of accounting practice that describes engagements which result from actual or anticipated disputes or litigation. The word "forensic" means "suitable for use in court". The forensic accountants have to keep in mind this statement while they have to work or chalk out their programme. The F.A. work is tailor made according to the situation and need. The gathering of information and evidences is done according to the need and situation. We can say, it is customized according to the situation. The forensic-accountants give expert evidence at the ultimate trial. All the modern medium-sized as well as the large-sized accounting firms have specialized forensic accounting departments. Within these firms there may be specialized forensic accounting departments. Within these groups their may be further sub-specializations. Various sub-specializations include insurance claims, personal injury claims, fraud detection, construction or royalty audits. Nearly 40 percent of the top 100 US accounting firms are expanding their forensic and fraud services, according to Accounting Today. Now if we consider this data as significant then we can say that the total contribution of forensic accounting to the total revenue of the C.A. firms would be highly significant in the years to come. Under rising instances of frauds and litigation and flourishing businesses these services are considered to be very significant as they are rendered at a very competitive price.
The forensic accountants utilize the various information relating the business, utilizes financial reporting systems, various accounting and auditing standards and procedures, investigative techniques and litigation processes and procedure to perform their work. By acting as advisors to audit committees and assisting in investment analyst research, they are playing more "proactive" risk reduction roles.This is possible by designing and performing extended procedures as part of the statutory audit. The objectives of such an accounting include measurement of losses caused by an auditor due to his negligence, to look into the matter whether their has been any embezzlement of cash, the amount, necessity of criminal proceedings, computation of asset values in a divorced proceeding.
The primary approach technique of forensic accounting is explanatory analysis(cause and effect)of the phenomena-including the discovery of deception(if any), and its effects -introduced into an accounting system field. The primary methodology employed by the forensic accountants is the verification of the objective. They are trained to deal with real world business and do have the sufficient expertise to look beyond(behind) the numbers. The scope of the forensic accountants are growing at a rapid pace. The increase in their work opportunities have been accelerated due to the fall of the Enron corporation and the collapse of the American Twin Towers.
This has led to increase in the demand for American forensic accountants. So as far India is concerned, formation of Serious Fraud Investigation Office(SIFO) is a landmark creation so far as forensic accountants are concerned. Failure of regulators to track security scams, increasing cyber crimes, chain of cooperative banks bursting -all point to the ever increasing need for forensic accountants. Our understanding of the need for forensic accountants is immaterial here. In India due to the growing number of frauds the need for forensic accountants is ever increasing. The regulatory and administrative agencies will put pressure for greater demand of forensic practices. This has been initiated due to the changing nature of Indian and International accounting.Auditing and assurance standards also confirm this. A change in the curriculum can be initiated if the written exams and practical industrial training are boosted to show the "new knowledge base and skill-set" required by the professional accountants in the new era. It is therefore recommended that the "forensic accounting and auditing" be introduced as a paper in the various professional examinations conducted by the various accounting bodies in India. Unfortunately forensic accounting is largely an unexplored area as far as India is concerned. The chartered Accountants(CAs) deal with such cases in an irregular fashion. In the western counter-part(countries), the Lawyers, police, insurance companies, government and regulatory bodies, banks, courts and business communities are increasingly utilizing the services of the forensic accountants.The accountants and the auditors must have the skills and expertise to venture into the emerging field of forensic accounting.
What Is Forensic Accounting? The growing needs of corporations has changed the definition of forensic accounting. As per Bologna and Indquist, "the application of financial skills and an investigative mentality to unresolved issues, conducted within the context of rules of evidence.It is a new emerging field that encompasses financial expertise, fraud knowledge, and a sound knowledge and understanding of business reality and the working of the legal system."It means that the forensic accounting should be skilled not only in financial accounting but also internal control systems, the legal matters, other institutional requirements, investigative blend of mind and interpersonal skills.