Account:A record of the changes and balances in the value of an individual item listed in the ledger (see next page) of an organization. An example of an asset account is the company's furniture and fixtures, usually listed as one item since it would be impractical to list every desk and chair. Each account, usually abbreviated a/c, frequently has its own page in the organization's ledger.
Audit: A review and evaluation of financial records by experts (auditors) who check the accuracy of the entries and the procedures followed by the accountants who originally compiled the records.
Capital: The investment in an organization or business by its owner or owners. Other terms often used instead of capital are owners' equity, often abbreviated OE, and proprietorship.
Credit:An amount entered on the right-hand side of an account. Liability, capital, and income accounts are increased by crediting, that is, by entering amounts in the right-hand column. Credit is usually abbreviated CR.
Debit: An amount entered on the left-hand side of an account. Asset and expense accounts are increased by debiting, that is, by entering amounts in the left-hand column. Debit is usually abbreviated DR.
Double-entry: A method of bookkeeping in which the twofold effect of every entry is recorded, thus requiring two entries to record each transaction. By recording both effects of each transaction, this system offers protection against error.
Fairness: A term used to describe financial records' state of accuracy, authenticity, and completeness.
Field Work: In auditing, the accounting activities of an independent auditor who examines company's records.
Independent Audit: An audit performed by someone from outside the organization. Most independent auditors are CPAs (certified public accountants).
Internal Audit: A review and evaluation of company's financial records by employees of the same company.
Internal Control: system that includes the plan of organization and 'all the related methods and measures adopted within a business to safeguard its assets, check the accuracy and reliability of its accounting date, promote operational efficiency, and encourage adherence to prescribed managerial policies.
Journal: A book in which transactions are recorded. In double-entry bookkeeping, both sides of the transaction — both the debit and the credit side — are entered in the journal.
Ledger: A listing of detailed accounts, such as a record comprising the accounts receivable of each customer. The general ledger is the book used to list all the accounts of an organization. Entries from all the journals are transferred to the ledger at regular intervals, usually monthly. This process is called posting. The ledger then serves as a summary of all the fiscal activity for that period.
Liability: An obligation that is owed by an organization: debts to other organizations for merchandise or services; wages owed to employees; accrued (owed but not yet paid) taxes; and payments due on loans or mortgages.
Opinion Paragraph: The part of an auditor's letter to his client that gives his opinion, or judgement, on the financial statements.
Posting: A process of copying amounts from the journal to the ledger accounts.
Scope Paragraph: A paragraph in a letter sent to a client by an independent auditor upon completion of an audit. It gives the scope, or extent, of the audit and the standards that have been applied.
Single-entry: Any bookkeeping system that does not include the complete results of each transaction. It is usually used by small companies or to keep track of specific accounts: for example, a checkbook which only keeps a record of the cash balance.
To Foot: To add or total the amounts in a column.
Trial Balance: When all the transactions for a certain period have been posted and footed, the debits should equal the credits. The test to see if this is so is called a trial balance.
Voucher: A business paper indicating receipt of a payment. Vouchers used for internal control include petty cash vouchers, showing payments from small cash funds that most companies keep for sums too small for writing checks, and expense account vouchers for expenses paid by personnel in connection with travel, entertainment, and so on.
1. What is an audit?
2. What is internal control?
3. What is a voucher? Name two kinds of vouchers.
4. What is an internal audit?
5. What are standard operating procedures'?
6. What is an independent audit? Who conducts most independent audits?
7. What does fairness describe in relation to financial records?
8. What is the scope paragraph?
9. What does field work refer to in auditing?
10. What is the opinion paragraph?
11. What is a liability? What are some examples of liabilities?
12. What does capital mean? What other terms are often used instead of capital?
13. What is an account? Give an example of an account. What abbreviation is commonly used for account?
14. What is double-entry bookkeeping? How does it differ from single-entry bookkeeping?
15. What is a debit? What kind of accounts is increased by debiting? What abbreviation is commonly used for a debit?
16. What is a credit? What kind of accounts is increased by crediting? How is it commonly abbreviated?
17. What is a journal? In double-entry bookkeeping, what is entered in the journal?
18. What is a ledger? What is the relationship of a journal to a ledger? What does posting mean?
19. What does to foot mean?
20. What is a trial balance?
Match the phrase on the left with the statement on the right.
8. Trial balance
1) Something of value to an organization.
2) The basic record in double-entry book-
3) Owners' equity.
4) The left-hand column of an account.
5) The right-hand column of an account.
6) The test balance of the accounts.
7) A book of original entries.
8) The book that lists all of the accounts.
9) That which is owed by an organization.
10) To transfer entries from the journal to the ledger.