Revenue And Expense Accounts Are Audited In Conjunction With Related

Having obtained an understanding of how an entity sets up internal control over revenues is very important for auditors to tailor the practical audit procedures to address all possible risks that might happen.

Revenue and expense accounts are audited in conjunction with related. Unlike other accounts revenue accounts are rarely debited because revenues or income are usually only generated. The standard chart of accounts is also called the uniform chart of accounts. Because expenses reduce revenue basic audit procedures help preserve the bottom line particularly when processing expense reports which is a common task for bookkeepers and accountants. Revenue and expense accounts in conjunction with the audit of asset and liability accounts.

As shown in the expanded accounting equation revenues increase equity. As auditors we perform the audit of revenue by testing various audit assertions including occurrence completeness accuracy and cut off. Revenue and expense accounts tend to follow the standard of first listing the items most closely related to the operations of the business. Among these assertions the occurrence may be the most important assertion as material misstatement of revenue usually because of overstatement rather than understatement.

The revenue account is an equity account with a credit balance. Because most financial statements under audit have to. For example sale commission expenses will be recorded in the period that the related sales are reported regardless of when the commission was actually paid. In some cases part or all of the expense accounts simply are listed in alphabetical order.

By doing so you make consolidation easier. Other relevant accounts see the following standard chart of accounts example below. Use a chart of accounts template to prepare the basic chart of accounts for any subsidiary companies or related entities. Expense auditing is a fundamental risk management task that s often critical to a company s profitability.

The revenue for each period is matched to the expenses incurred in earning that revenue during the same accounting period. Purchasing is the other it s also the major account in which you look for instances of financial misstatements. Revenue and expense accounts are audited in conjunction with related and accounts. For example sales would be listed before non operating income.

This means that a credit in the revenue t account increases the account balance. Now let talk about the internal control related to the revenue and why auditor need to understand it. Substantive tests for payroll accounts address the. However ferreting out common instances that lead to material revenue misstatements is fairly easy.