Internal Audit

Internal Audit

h2>What is an internal audit? The objective of an internal audit is to provide independent assurance that an organization’s risk management, governance and internal control processes and operating effectively. What is the value of an internal audit to the organization? Internal auditors deal with issues that are fundamentally important to the survival and prosperity of any organization. The difference between internal auditors and external auditors, is that they look beyond the financial risks and statements in order to consider wider issues. These issues are things…

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Book Value

Book Value

What is the book value? The book value is the value of an asset according to its balance sheet account balance. For assets, the value is based on the original cost of the asset minus any depreciation, amortization or impaired costs made against the asset. Traditionally, a company’s book value is its total assets minus intangible assets and liabilities. In practice, depending on the source of the calculation, the book value may variably include goodwill, intangible assets or both. When intangible assets and goodwill are…

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Matching Principle

Matching Principle

What is the matching principle? The matching principle is one the basic, underlying guidelines in accounting. It requires that expenses incurred by an entity must be charged to the income statement in the accounting period in which the revenue, (to which those expenses relate), is earned. Explanation of the matching principle Before the matching principle came into effect, expenses were charged to the income statement in the accounting period in which they were paid, even if they didn’t relate to the revenue earned during that…

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Average Cost Methods

Average Cost Methods

Under the Average Cost Method, it is assumed that the cost of inventory is based on the average cost of goods that are available for sale during the period. The average cost is calculated by dividing the total cost of goods available for sale by the total units available for sale. This gives you a weighted-average unit cost that is applied to units in the ending inventory. There are two commonly used average cost methods: Simple weighted-average cost. Perpetual weighted-average-cost. Weighted Average Cost Weighted Average…

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FIFO and LIFO

FIFO and LIFO

What are FIFO and LIFO? The FIFO and LIFO methods are accounting techniques that are used o manage inventory and financial matters involving the amount of money a company spent within inventory of produced goods, raw materials, parts, components or feed stocks. These methods are used to manage any assumptions on the cost flows related to inventory, repurchases and other accounting purposes. FIFO FIFO stands for first-in, first-out. This means that the oldest stock is recorded as the first sold. This does not necessarily mean…

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Inventory Valuation

Inventory Valuation

What is inventory valuation? An inventory valuation allows a business entity to provide a monetary value for items that make up their inventory. Inventories are usually the largest current asset of a business. The proper measurement of the inventory is necessary to ensure that accurate financial statements are created. If an inventory is not properly measures, the expenses and revenues of the entity cannot be matched. The drawback is that the business entity could make poor business decisions. Inventory accounting systems The two most widely…

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dividends

Dividend

What is a dividend? A dividend is a payment made by a business to its shareholders. It is usually a distribution of profits. When a business earns a profit or surplus, it can reinvest this money in the business, and pay a fraction of this reinvestment as a dividend to its shareholders. The distribution to shareholders can be in cash or a dividend reinvestment plan, paid by the issue of further shares or repurchasing shares. How is a dividend calculated? A dividend is allocated as…

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Historical Cost

Historical Cost

What is historical cost? Historical cost is the original value of an asset. It is based on the stable measuring unit assumption. In some cases, assets and liabilities may be shown at their historical cost, like there has been no change in its value since the date of its acquisition. The balance sheet value of the item may differ from the real value. How does depreciation affect historical cost? Depreciation affects the carrying value of an asset on the balance sheet. The historical cost will…

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Assets

Assets

What are assets? An asset can be referred to as an economic resource. Any resource that is controlled by the company as a result of past events and from which there’s future economic benefits. Characteristics of assets: One of the most accepted accounting definition of an asset is the one used by the International Accounting Standards Board. The following as a quote from the IFRS Framework: “An asset is a resource controlled by the enterprise as a result of past events and from which future…

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Revenue

Revenue

What does revenue mean? Income from activities that are ordinary for a particular business. Most of the businesses such as manufacturing or anyone who sells goods, revenue comes from the sale of goods. Service businesses such as law firms or accountants, receive most of their revenue from services that are rendered. Lending businesses like car rental agencies or banks, will receive most of their revenue from fees and interests that are generated by lending assets to organizations or individuals. Revenues from the business’s primary activities…

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