Boundless: Finance: "Chapter 3, Section 11: Other Distortions"

Discrepancies

A discrepancy is an accounting error that was not caused intentionally, meaning the books don't properly match.

LEARNING OBJECTIVE

  • Describe the process of reconciliation as a means of finding and resolving discrepancies

KEY POINTS

    • At the end of each month when you get your bank or credit card statement, you will need to reconcile each account in your accounting program against the statement.
    • You will want to double check that you entered the correct starting and ending balances for the account, and if you did, go back through all the transactions until you find the problem. Then correct it and you can proceed with your reconciliation.
    • In accounting, reconciliation refers to a process that compares two sets of records (usually the balances of two accounts) to make sure they are in agreement.
    • It depends on the type of discrepancies, most accounting discrepancies are due to the lack of accuracy (decimal places) when breaking down a large figure. Although more decimal places in your calculations can help solve discrepancies it can look rather unsightly on a report.

TERM

  • reconciliation

    Process of matching and comparing figures from accounting records against those presented on a bank statement.

FULL TEXT

At the end of each month when you get your bank or credit card statement, you will need to reconcile each account in your accounting program against the statement. This process double checks everything you entered for the month, making sure you didn't miss any transactions, enter duplicate transactions, or enter the wrong amount for a transaction. It also marks the checks that cleared that month as such, so you know how many outstanding checks you have floating out in the world.

A discrepancy is an accounting error that was not caused intentionally. An accounting error can include discrepancies in dollar figures, or might be an error in using accounting policy incorrectly (i.e., a compliance error). Discrepancies should not be confused with fraud, which is an intentional error in an accounting item, usually to hide or alter data for personal gain. A discrepancy just means something doesn't match. You will have the option to go back and locate the discrepancy, or to reconcile anyway. Unless the discrepancy is very small you should go back and correct the problem. You will want to double check that you entered the correct starting and ending balances for the account, and if you did, go back through all the transactions until you find the problem. Then correct it and you can proceed with your reconciliation.

In accounting, reconciliation refers to a process that compares two sets of records (usually the balances of two accounts) to make sure they are in agreement. Reconciliation is used to ensure that the money leaving an account matches the actual money spent, this is done by making sure the balances match at the end of a particular accounting period. Well reconciliations refers to two sets of records (what is being put in the well compared to what actual costs are being spent). The two numbers are compared to assure that they balance at the end of the accounting cycle. There is usually a difference. A robust reconciliation process improves the accuracy of the financial reporting function and allows the Finance Department to publish financial reports with confidence. ""

Reconciliation of discrepancies

Reconciliation of discrepancies

Bank reconciliation statement

It depends on the type of discrepancies, most accounting discrepancies are due to the lack of accuracy (decimal places) when breaking down a large figure. Although more decimal places in your calculations can help solve discrepancies it can look rather unsightly on a report.


Extraordinary Gains and Losses

Extra gains or losses are nonrecurring, onetime, unusual, non-operating gains or losses that are recorded by a business during the period.

LEARNING OBJECTIVE

  • Define what makes a gain or loss extraordinary

KEY POINTS

    • Extra gains or losses are nonrecurring, onetime, unusual, non-operating gains or losses that are recorded by a business during the period.
    • No items may be presented in the income statement as extraordinary items under IFRS regulations, but are permissible under US GAAP. (IAS 1.87) The amount of each of these gains or losses, net of the income tax effect, is reported separately in the income statement.
    • Examples of extraordinary items are casualty losses, losses from expropriation of assets by a foreign government, gain on life insurance, gain or loss on the early extinguishment of debt, gain on troubled debt restructuring, and write-off of an intangible asset.

TERMS

  • extraordinary items

    unusual (abnormal) and infrequent things that impact the company

  • non-operating

    Non-operating in accounting and finance is not related to the typical activities of the business or organization.

FULL TEXT

Extraordinary Gains and Losses

Extraordinary items are both unusual (abnormal) and infrequent, for example, unexpected natural disaster, expropriation, prohibitions under new regulations. It is notable that a natural disaster might not qualify depending on location (e.g., frost damage would not qualify in Canada but would in the tropics).

Extra gains or losses are the result of unforeseen and atypical events. They are nonrecurring, onetime, unusual, non-operating gains, or losses that are recorded by a business during the period.

No items may be presented in the income statement as extraordinary items under IFRS regulations, but are permissible under US GAAP. (IAS 1.87) The amount of each of these gains or losses, net of the income tax effect, is reported separately in the income statement. Net income is reported before and after these gains and losses. As a result, extraordinary gains or losses don't skew the company's regular earnings. These gains and losses should not be recorded very often but, in fact, many businesses record them every other year or so, causing much consternation to investors. In addition to evaluating the regular stream of sales and expenses that produce operating profit, investors also have to factor into their profit performance analysis the perturbations of these irregular gains and losses reported by a business.

Income statement in accordance with IFRS

Income statement in accordance with IFRS

This income statement is a very brief example prepared in accordance with IFRS; no extraordinary items are presented.

Examples of extraordinary items are casualty losses, losses from expropriation of assets by a foreign government, gain on life insurance, gain or loss on the early extinguishment of debt, gain on troubled debt restructuring, and write-off of an intangible asset. Write down and write off of receivables and inventory are not extraordinary, because they relate to normal business operational activities.They would be considered extraordinary, however, if they resulted from an Act of God (e.g., casualty loss arising from an earthquake) or governmental expropriation.





Last modified: Thursday, April 19, 2018, 1:39 AM