What is an Auditor – Leigh Barker

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An auditor is an independent person or company appointed to check and verify the accuracy of financial records. An auditor may be an external auditor who examines the financial records and business transactions of an entity in which there is no affiliation or an internal auditor responsible for providing independent and objective evaluations of an entities financial and operational activities.

External auditors are engaged to express an opinion that the financial statements of an entity are free from material misstatements. An external auditor will communicate to management and staff to obtain a detailed understanding of an entity, of the operations of the entity, financial reporting and internal control procedures.

External auditors conduct the audit in accordance with specified audit guidelines and the users of an entities financial statements rely upon the external auditor to present an unbiased and independent audit report.

Internal auditors while employed by the organisation they audit bring a systematic and disciplined approach in evaluating financial and business activities inclusive of the effectiveness of risk management, control and corporate governance. Internal auditors report to management on how to improve the overall structure and business practices of an entity.

Internal auditors are not responsible for implementing the activities of an entity. The role of an internal auditor is to advise the Board of Directors how to better implement their responsibilities. An internal audit report will summarise the findings, recommendations and generally contains an action plan for management to implement.

Please note: Prepared by Leigh Barker Accountant at MWC Group, Tangible Assets, Portfolio Finance, Gordon and West Pennant Hills. Note that all content of this blog is general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstance.

What is Accounts Receivable

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Accounts receivable represents the money owed to a company for outstanding invoices for goods or services provided to a client. It is the right to received for delivering a service or product.

Accounts receivable is an enforceable claim for payment and is generally executed by raising an invoice which is either mailed or delivered electronically to the customer who is required to pay for the cost of goods or services within a specified timeframe which is commonly described as the terms of trade.

To record report accounts receivable a debit entry is posted to accounts receivable when an invoice is raised as receivable and credit entry is posted to accounts receivable when the payment is received for the invoice.

Payment terms are generally 30 days from the date of the invoice and in some instances late payment fees are charged if the invoice is not paid by the due date.

While recording an item in accounts receivable can be accomplished with relative ease, the process of collecting payments and maintaining the accounts receivable ledger can be a full time task.

The Accounts Receivable ledger is divided is generally reported as either current, 30 days, 60 days, 90 days or longer. The accounts payable report is commonly termed an aged trial balance where clients are typically listed in alphabetic order or by the amount outstanding, or according to the company chart of accounts. Zero balances are not usually shown.

Please note: Prepared by Leigh Barker West Pennant Hills – Accountant at MWC Group, Tangible Assets, Portfolio Finance and Gordon. Note that all content of this blog is general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstance.

What is Accounts Payable – Leigh Barker West Pennant Hills

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Accounts payable is an accounting term used to describe the money owed by a business to its suppliers. Basically accounts payable is a short term debt and represents an obligation to creditors of either an entity. Accounts payable is classified as a current liability in the balance sheet as payment generally takes place within a short period of time. Accounts payable are usually due within a 30 to 60 day period and usually no interest is charged if the balance is paid on time.

Accounts payable can include such items as expenses, payroll costs, taxes, short term loans, physical goods, advertising, travel entertainment, office supplies, utilities etc.

Accounts payable occurs when a supplier of goods or services delivers ships or provides a service then issues an invoice and collects payment later.

To record and report accounts payable a credit entry is posted to accounts payable when an invoice is identified as payable and debits accounts payable when the payment is made for the invoice received.

While some interchange the terms “accounts payable” and “trade payables” the terms refer to similar but slightly different transactions. Trade payables comprise money owed for business materials and supplies while accounts payable is broadened to include all other short-term debts.

Thus is a newsagent owes money to the supplier of cards or magazines then this inventory forms part of its trade payables, whereas money owed for utilities or payroll related items it would form part of accounts payable. It is not uncommon to have both items reported in the accounts payable category.

Please note: Prepared by Leigh Barker West Pennant Hills – Accountant at MWC Group, Tangible Assets, Portfolio Finance, and Gordon. Note that all content of this blog is general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstance.

What is a Chart of Accounts

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A chart of accounts is the foundation of a record keeping system as it provides and orderly and logical list of every general ledger account in an accounting system. A chart of accounts is a unique set of codes used to record all transactions consistently. It is a list of all the accounts available in an accounting system to record journal entries with each account structure in a manner that enables the user to record for each type of asset, liability, shareholders equity, revenue and expense.

Accounts are usually listed in the same order as the financial statements commencing with the balance sheet and continuing with the income statement. Thus a chart of accounts begins with the cash accounts, then current assets and fixed asset accounts which are followed by the current liabilities and non-current liabilities. Next is shareholders equity then the income and expense items.

Each account in the chart of accounts is assigned a name and number showing classifications and sub-classifications. The chart of accounts acts as an index to locate a specific account within a general ledger. A properly constructed chart of accounts can be expanded and tailored to reflect ever changing operational needs.

An important purpose of the chart of accounts is to segregate assets, liabilities, shareholder equity income and expenses to ensure that those who read these statements can obtain a clear understanding as to the financial status of the party that is producing financial documents for either management reporting or to comply with statutory or other reporting obligations.

Please note: Issued by Leigh Barker Gordon and West Pennant Hills. Note that all content of this blog is general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstance.

What is Accounting

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Accounting is the process of preparing, recording, summarising and analysing the financial position and operating results. Accounting is also a profession comprising individuals who have obtained a formal education to perform accounting tasks.

Accounting is an essential process and the means of determining financial stability and it is the accountant who determines the overall wealth, profitability, and liquidity of a business.

Accounting has numerous sub-categories such as management accounting, financial accounting, tax accounting and auditing.

Accounting includes such activities as

  • Measuring, analysing and reporting information to business managers to assist with decision making within an organisation to achieve its goals.
  • The provision of financial information about an entity that is useful to external parties who make decisions about providing resources to that entity
  • The preparation, analysis and submission of tax returns in accordance with relevant tax law
  • Undertaking an unbiased examination and evaluation of an entity to provide a reasonable assurance that the financial statements of an entity are presented fairly in all material aspects
  • General compliance with the statutory requirement of various regulatory bodies

While there are many layers or aspects of accounting they are all conducted in accordance with a standard set of accounting principles called GAAP or General Accepted Accounting Principles which all businesses follow. This consistency in the application of business accounting procedures will ensure that there is consistency in understanding the accounts regardless of the business.

Thus accounting is the basis upon which daily and long-term decisions are be made.

Please note: All content of this blog is general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstance. Issued by Leigh Barker West Pennant Hills Gordon.