Types of Audit Records Flashcards
What is bookkeeping?
Bookkeeping is the methodology of organizing and tracking the business’s financial transactions.
How are transactions entered?
Transactions are entered chronologically in a journal.
Where are journal entries posted?
Journal entries are posted to the general ledger of accounts.
How are financial statements prepared?
Financial statements are prepared from the general ledger - usually monthly.
What is cash basis accounting?
Income recognized when money is received and expenses are recognized when they are paid.
What is accrual basis accounting?
Income recognized when goods are shipped or services are rendered. Expenses are recognized when the business is obligated to pay the expense(s).
What are the two Entry Methods?
- Single Entry - usually includes revenue journal end expense journal; similar to a checking account register
- Double Entry - each transaction is recorded in two accounts: one is a debit, one is a credit. Debit and credits must balance.
What are the Record Types?
- Journals and Ledgers are used to record transactions as they occur.
- Trial Balance is a listing of accounts in the general ledger as of a specific date, such as the end of an accounting period.
- Chart of Accounts is a systematic list of all accounts used by the company. There are six categories:
> Assets
Liabilities
Owner’s Capital (Owner’s Equity)
Sales or Revenue
Cost of Sales
Expenses
What is a Journal?
- Contains day-to-day, chronological transactions
- The book of original entry
- Single entry is used for each transaction
- Several types:
> Payroll Journal (Payroll Register)
> Cash Disbursements Journal
> Sales Journal
> Cash Receipts Journal
What is the General Ledger?
- A collection of all income and expense accounts and balance sheets
- The book of final entry for all accounts
- There is only one for each company
- Double entry bookkeeping is used, so all debits and credits must balance
What is an Income Statement?
- Also referred to as a profit & loss statement (P&L)
- Lists income by revenue source, cost of sales, expense by categories, and net income
- Typically a good source for sales audits
What are Report Types?
- Automated software can produce many different types of reports
- Reports are typically run for a specific period of time and provide a summary of the accounts for that period; less detailed than journals
> Summary Report: a condensed report for a specific time period for one account
> Period-to-Date Summary: a condensed report for a specific time period for one account; may be annual/year-to-date (YTD), monthly/month-to-date (MTD), or quarterly/quarterly-to-date (QTD).
> Transaction Detail Report: detailed transactions for specific types of expenses of revenue; use care in determining which accounts to list
What are the Accounting Periods?
- Calendar year - January 1st through December 31st
- Fiscal year - A 12-month period beginning on the date the company first started business or on the first of any month other than January 1st.
What are Tax Returns use in Premium Auditing?
- Tax returns are limited in detail and therefore only suitable as a secondary source of verification for payroll audits. They are NOT to be used as a primary record source.
- Sales tax returns may be used as a secondary source for sales audits. They are usually monthly.
- Payroll tax returns include:
> 941s
940s
W-2s
W-3
SUIs
1099s
Sales Tax Reports
What are 941s?
941s: A quarterly federal tax return that reports payroll for all states in which the employer does business. The return will show the Federal Employer Identification Number (FEIN) and also the number of employees during the quarter. Shows total gross taxable Medicare wages and tips (line 5c) as well as taxable wages (line 2). Either line may be used, but you should identify which line was used.
