Evidence based accounting for dummies is the popular word now a days. What is accounting for dummies? It means you can understand easily a particular chapter even you are with out experienced guy., All the accounting entry must be recorded based on the objective evidence. Objective refers – to verifiability, reliability and absence of bias. Objective evidence Concept implies that all accounting transactions must be based on objective evidence. i.e., financial transactions are recorded in the books of accounts should be supported by verifiable and acceptable documentary evidence. Then only the auditors can verify information record as true/correct or otherwise to complete the audit. The evidence is in any time should not be biased. That is why the reason is the assets are recorded at historical cost at the time of purchase and disclosed thereafter in books at historical cost less depreciation amount. If the assets are disclosed on replacement cost basis, the objectivity is lost and it become difficult for auditors to verify such value, however, in resent year replacement cost are used for specific purpose as only they represent relevant costs. For example, to calculate and know the real share value, we need replacement cost of assets and not the historical cost of the assets. Objective evidence concept facilitates auditing of accounts and eliminates unauthorized entries in the books of accounts, improving their reliability, accuracy and completeness. Understanding basic accounting is the first key to perferm well in accounting. Lot of accounting for dummies free pdf guides available in the internet. So you can use these guides to improve your evidence based leadership. I personally recommend Accounting 101 Cheat Sheet and Accounting 101 Study Guide for improve your knowledge in accounting.
Accounting achieves authenticity, accuracy and reliability by following the concept of objective evidence.
According to this concept, the accounting information should be definite, verifiable, reliable and free from personal bias of the accountant.
Evidence based Accounting For Dummies Explanation
Evidence based accounting for dummies is completely evidence based. It mean surely have some proof. In other words, objective evidence concept requires that each financial transaction/event are recorded in the books of accounts should have an adequate documentary evidence to support it. As per historical financial accounting, the accounting data are verifiable since, the transactions are recorded on the basis of source documents such as vouchers, receipts, cash bill, invoices, and other evidence in authorized form. These supporting documents form the basis for their verification by auditors afterwards, for items like depreciation and the provisions for doubtful debts where no documentary evidence is available; the regulation/ policy statements made by the entity are treated as the necessary evidence.
Examples of some evidence based accounting –
1.cash receipts for payment made some thing
2.invoice copy for purchases
3.bank paying-in counterfoils
4.bank book for cash deposit and payment made
5. Receipt for investments made, etc
At the same time in Historical financial accounting neither the accounting data is bias free since the accounting data are neither subject to the bias of the management nor the accountant who prepares the accounts. Basic concepts of accounting are essentially, the general decision rules which govern the development of accounting techniques. These concepts/principles are guides how the financial transactions should be recorded and reported in the financial statements.
Objectivivety evidence concept – Objectivity implies reliability, accuracy and trustworthiness. A principle is objective to the extent the accounting information is not implies verifiability which means that there is some way of ascertaining the correctness of the information reported.
In nutshell, Objective evidence concept requires that each recorded financial transactions in the books of accounts should have an adequate documentary evidence to support it. For example, cash receipt for payments made. The documentary evidence of transactions should be free from any personal bias also. As accounting records are based on documentary evidence which is capable of verification, it is universally acceptable principle in the accounting process. Through this article I strongly recommend one book called “Accounting for dummies”. However this is out of this article and it is relative this chapter.
Originally posted 2013-10-23 07:22:35.