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There are times when items will go directly to the general ledger without any sub ledger posting. These are primarily capital financial transactions that have no operational sub ledgers. These may include items such as capital contributions, loan proceeds, loan repayments (principal), and proceeds from sale of assets. These items will be linked to your balance sheet but not to your profit and loss statement.
The same concept of a sheet of paper holds for each sub ledger that feeds the general ledger. A computerized accounting system works the same way, except that the general ledger and sub ledgers are computer files instead of sheets of paper. Entries are posted to each and summarized, and then the summary is sent up to the G/L for posting.
We segregate liabilities into short-term and long-term categories on the balance sheet. This division is nothing more than separating those liabilities scheduled for payment within the next accounting period (usually the next twelve months) from those not to be paid until later. We often separate debt like this, it gives readers a clearer picture of how much the company owes and when.
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The concept of depreciation is really pretty simple. For example, let's say you purchase a truck for your business. The truck loses to value the minute you drive it out of the dealership. The truck is considered an operational asset in running your business. Each year that you own the truck, it loses some value, until the truck finally stops running and has no value to the business. Measuring the loss in value of an asset is known as depreciation.
An increased need for accountants and auditors also will arise from changes in legislation related to taxes, financial reporting standards, business investments, mergers, and other financial events. Persuant to accounting scandals at several large corporations, Congress passed the Sarbanes-Oxley Act of 2002 in an effort to curb corporate accounting fraud. This legislation requires public companies to maintain well-functioning internal controls to ensure the accuracy and reliability of their financial reporting. It also holds the company's chief executive personally responsible for falsely reporting financial information.
Internal auditors verify the effectiveness of their organization's internal controls and check for mismanagement, waste, or fraud. They examine and evaluate their firms' financial and information systems, management procedures, and internal controls to ensure that records are accurate and controls are adequate. They also review company operations, evaluating their efficiency, effectiveness, and compliance with corporate policies and government regulations. Because computer systems commonly automate transactions and make information readily available, internal auditors may also help management evaluate the effectiveness of their controls based on real-time data, rather than personal observation. They may recommend and review controls for their organization's computer systems, to ensure their reliability and integrity of the data.
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