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Concept of Accounting:
Accounting, as an information system is the process of identifying, recording,
classifying, summarizing, analyzing, interpreting and communicating of economic
and financial transactions and events of an organization in a systematic manner for
planning and decision making purpose to its users. Accounting performs a basic
function of language of business which is expressed in terms of money.
Ethical and professional accounting forms a clear financial image of a business, and
allows managers to make informed decisions, keeps investors abreast of
developments in the business and keeps the business profitable.
As an information system accounting is viewed as under;
Inputs
Business
Transactio
ns and
events
Processing
Accounting
principles
and
procedures
Outputs
Financial
Statments
and
Reports
Users
Investers,
Lenders,
Managers
Auditing
Auditing can be defined as check, verification and examination of books of account.
It is a systematic, independent and neutral examination of business transactions or
an organization. Auditing usually checks and verifies whether the account present
true and fair picture of business or not? Auditing is a task of finding mistakes,
frauds, embezzlement of cash, irregularities, undue activities, and other negligence
made in business transactions and events. After examination, it provides comments,
suggestions and recommendations for the improvement and action.
Internal audit: It is usually concern with finding procedural mistakes, fraud and
other irregular activities happening in transaction. Internal audit is conducted either
by internal audit department or through independent auditors.
1.
2.
3.
4.
Financial statements provide real financial situation of a particular period and are
prepared at the end of each fiscal year. These statements shows profit and loss
situation, position of assets and liabilities, position of capital, loan, borrowing and
assets situation.
Importance of financial statements/ Statement of financial reporting:
1.
2.
3.
4.
Ratio analysis
Comparative statements or horizontal analysis
Common size statement or vertical analysis
Trend analysis
DuPont analysis
Ratio analysis