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Small Business Accounting

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Testing Inventory Transactions

After you test inventory and verify that your audit client is following its standards, you’re ready to start testing management assertions. For inventory transactions you test these five management assertions [more…]

Including Tangible Assets in an Audit

When you perform an audit of a company, you have to account for that company’s tangible assets. You can find your audit client’s property, plant, and equipment in the asset section of its balance sheet [more…]

How to Check Depreciation Calculations

There are a few different ways that your audit client might use to figure depreciation. In addition to understanding depreciation accounting methods, when doing an audit, you need to know the following [more…]

How to Deal with the Disposal of Fixed Assets

In the normal course of doing business, an audit client will rid itself of unneeded fixed assets by selling them, trading them in as partial payments on new fixed assets, or [more…]

Handling Unpurchased Assts in an Audit

Auditing purchased assets is relatively easy, because you can test most management assertions by looking at the purchase source documents. But what about assets that aren’t purchased? Here are three examples [more…]

How to Deal with Intangible Assets During an Audit

Intangible assets differ from the other assets on your audit client’s balance sheet because they don’t have a physical presence and aren’t financial instruments like cash. However, like fixed assets, their [more…]

Checking Amortization Calculations in an Audit

As an auditor, you have to check the company’s intangible assets and that means understanding amortization. Amortization spreads the cost of an intangible asset over its expected useful life. Much like [more…]

How to Classify Contingent Liabilities

As you perform your audit, you have to determine how important a contingent liability is to the audit. A contingent liability can come in three categories, and the category it falls into gives you guidance [more…]

How to Recognize Contingent Liabilities During an Audit

Knowing what a contingent liability is and how to handle it is great, but suppose the client doesn’t tell you it has contingent liabilities? To protect the good name of your CPA firm you need to find all [more…]

Long-Term Debt that Impacts an Audit

Companies, like individuals, have long-term debt. To perform an audit, you need to understand the forms a company’s long-term debt can take and the debt-related issues you need to consider when conducting [more…]

How to Review Capital Stock Accounts

When you are auditing stockholder equity, you want to look at the capital stock accounts. Capital stock includes all paid-in capital. The board of directors has to approve all capital stock transactions [more…]

Following Long-Term Debt Audit Procedures

As an auditor, your primary objective is to make sure all your client’s legitimate obligations are properly recognized on its financial statements. Here are three tasks auditors must perform when examining [more…]

Stockholders’ Equity Issues in Auditing

Stockholders’ equity represents the claim that the corporation’s shareholders have to the company’s net assets. As an auditor you have to account for net assets. Stockholders’ equity has three common components [more…]

Examining the Company Charter When Auditing Stockholders’ Equity

Your first task when reviewing your audit client’s stockholder equity transactions is to double-check the terms of the corporate charter. The corporate charter contains pertinent facts about the corporation [more…]

Confirming Transactions When Auditing Stockholder Equity

When performing an audit of stockholder equity, you will want to verify the transactions with an independent registrar, who can confirm that all stockholders’ equity transactions are authorized by a company’s [more…]

How to Test Dividends

During your audit of stockholder equity, you want to make sure your client’s dividends are correct. Making money is the whole reason that investors purchase stock, and dividends are one way that investors [more…]

How to Review Retained Earnings

During your audit, you shouldn’t have to deal with much activity going on in the retained earnings account, so you generally audit all the transactions rather than sample and test. Inherently this is just [more…]

How Businesses Use Cash Accounts

From an auditing standpoint, cash is an important account because cash transactions affect all other business and financial processes. Businesses acquire cash by selling goods or services, disposing of [more…]

Auditing a Company’s Interest-Bearing Bank Accounts

Some accounts can accrue interest. As an auditor, you need to keep track of these accounts as well as cash and investment accounts. Keep in mind that all interest income from all bank accounts must be [more…]

Auditing a Company’s Investment Accounts

When performing an audit you have to account for all of your client’s assets. Not all assets are tangible objects or cash sitting in the bank. Many companies sell their own securities [more…]

How to Examine Risks Related to Liquid Assets

At every step of an audit, you have to consider risks and their associated controls. It’s important to consider risks and controls to make sure your audit effectively and efficiently guides you toward [more…]

Assessing Controls Related to Cash

When you assess an auditing client’s cash control risk, remember that control risk is directly affected by the internal controls the company has set in place. Cash is a risky account because the money [more…]

Monitoring the Frequency of Deposits and Account Balances

While you’re interviewing the audit client, find out about its sources of cash and how often it makes bank deposits. If an audit client — especially a retail client or one receiving a preponderance of [more…]

How to Check Bank Reconciliations

Your audit client will prepare bank reconciliations, which compare and adjust its cash balance per its bank statements with its book cash balances. When you audit the bank reconciliations, you must make [more…]

How to Test Investments

As an auditor you have to test security investments such as your client’s stocks and bonds. Testing investments during an audit is no different from testing any other financial account, such as cash. You [more…]

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