What is business entity concept?
Business entity concept or Separate entity concept or Separate economic entity concept are different names for the same concept. According to business entity concept, the business is distinct and separate from its owners i.e. business and its owners should not be treated as one and the same thing. Accepting this concept means that the activities […]
Is there any case in which Liability increases and decreases as well?
In one single transaction there are absolutely NO chances that liability increases and also decreases at the same time. And even for the sake of argument we consider that yes it will increase and decrease then the increase and decrease will be equal thus making no difference at all. However, if the question was asked […]
Why closing inventory appears on the credit side of Trading account?
Closing stock or as it is also named as closing inventory is definitely an asset. But trading account is not the same as Inventory account. Inventory, being an asset, should have a debit balance in Inventory account. Trading account is a distinct account and both must not be mixed up together. The answer to the […]
What is meant by ‘line item’ in accounting standards?
Term line item basically refers to such piece of information which has its own weight and should be presented on a separate line on any document. In context of International Accounting Standards (IASs) and International Financial Reporting Standards (IFRSs) line items simply means a category on the face of financial statements and in the notes […]
What are the FIVE Elements of an assurance engagement?
According to International Framework on Assurance Engagements, there are five elements of any assurance engagement which are as follows: A three party relationship involving practitioner (auditor), a responsible part (client) and intended users (users of financial statements) Subject matter; against which assurance is required by the intended users Criteria; which will be used by the […]
What is the difference between Internal Audit Function and Internal Control System?
Let’s refresh some important areas before we get to the answer to this question so that no room is left for confusions. I will be having a quick go through each topic that is relevant. Users require financial statements to fulfill their information needs and in order to reach good decisions they must have accurate […]
What is Matrix Organization?
There are many ways in which organizations reporting lines can be structured. Matrix organization is an organization which basically employs matrix management in its core structure. However, students must not confuse matrix organizations with matrix management as organizations can have matrix management system in place even if the organizational structure is not matrix based. The […]
What is the difference between Cost and Expense?
Most of the time the difference between the terms Cost and Expense is ignored and are used interchangeably. However, the difference is significant from accounting perspective and being an accountant it is good if we keep these two terms separate to cause lesser confusion and clearer communication of financial information. Cost can be defined as […]
What is Contra account?
Accounts in any business hold important information regarding different aspects of the entity and its operations. And to keep the information relevant and reliable these accounts needs to be updated to record all such transactions that relates to particular account. For example, funds deposited in the bank account and withdrawn are recorded in the Bank […]
What is Sampling risk in auditing?
In order to express an opinion, auditor needs sufficient appropriate audit evidence. To obtain audit evidence, auditor applies range of audit procedures. But due to limited time and resources and also to conduct audit efficiently, auditor does not apply audit procedures to the whole population in consideration. Instead, he carefully selects reasonably small proportion, which […]
