Accounting Internal Controls

Internal controls in accounting are used to reduce the risk of fraud and error in the bookkeeping and accounting system. The level of internal controls used will depend on the nature and size of the business involved.

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Accounts Payable Control Account

The accounts payable control account is an account in the general ledger which maintains summary postings relating to accounts payables. The account, which is sometimes referred to as the purchases ledger control account, is used to allow the detail of supplier transactions to be kept in a separate subsidiary personal account ledger which is not part of the double entry bookkeeping system.

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Accounts Receivable Control Account

The accounts receivable control account is an account in the general ledger which maintains summary postings relating to accounts receivables. The account, which is sometimes referred to as the sales ledger control account, is used to allow the detail of customer transactions to be kept in a separate subsidiary personal account ledger which is not part of the double entry bookkeeping system.

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Accounting Transaction Analysis

Accounting transaction analysis is part of the accounting cycle, and is the name given to process involved in using information from accounting source documents to firstly identify whether the transaction is an accounting transaction, and then applying the basic bookkeeping rules of debit and credit to break down the transaction into its component parts.

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Accounting Assumptions

Financial statements are multipurpose documents used by many different parties for different reasons. For this reason financial statements need to be based on a generally agreed accounting framework or structure so that all parties understand how they are produced. Accounting assumptions can be considered to be the foundations on which the framework is based.

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Subsidiary Ledgers in Accounting

When a business has only a small number of accounting transactions then the double entry bookkeeping postings can all be maintained in a single ledger.

As the business expands the number of transactions and accounting staff increases and it becomes impractical to maintain one ledger due to its large size, and the problems of access to the ledger by multiple staff.

The solution is to sub-divide the ledger by accounting function into sales, purchase, cash book, and general ledgers.

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Control Accounts

In a small business the accounts can be kept in one accounting general ledger and a trial balance can be extracted from that ledger. In a larger business, where the transactions are too many to be managed by one person, subsidiary ledgers such as the accounts receivable ledger (sales ledger) and the accounts payable ledger (purchase ledger) will be opened.

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Accounting Errors

Accounting errors can occur in double entry bookkeeping for a number of reasons. Accounting errors are not the same as fraud, errors happen unintentionally, whereas fraud is a deliberate and intentional attempt to falsify the bookkeeping entries.

An accounting error can cause the trial balance not to balance, which is easier to spot, or the error can be such that the trial balance will still balance due to compensating bookkeeping entries, which is more difficult to identify.

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Cash vs Accrual Accounting

Cash vs accrual basis of accounting are two methods of recording transactions for a business.

Under the cash basis, transactions are recorded when cash is received or paid, under the accrual basis revenue is recorded when earned and expenses are recorded when incurred.

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