A

The purpose and use of the accounting records which used in MonteHodge: Accounting is a crucial discipline for keeping track of quantifiable factors for a business or individual. Accountants are primarily employed to track the flow of money through an organization. In some cases, they are charged with ensuring legal compliance. In others, they are more specialized in optimizing that cash flow. Accountants also organize and aggregate financial information and produce reports for people less experienced in the discipline The main aim of any business is to earn profits and also to remain solvent, i.e., it should have enough resources to pay its employees, creditors and to carry on with the day-to-day activities of the business. The main purpose of accounting system is to prepare financial statements, that will help the various external and internal parties of the business to appraise the profitability as well as the solvency of the business. The three main financial statements that are prepared for the purpose of accounting information are as follows. Balance Sheet A balance sheet is the most important financial statement of a company. The balance sheet contains the assets and liabilities of a company as well as the owner's equity, which is the difference between these two. Analysis of the balance sheet statement has many benefits such as asset management decisions are based on the balance sheet statement. Also, in order to raise finances for the company, most lenders first analyze the last three years balance sheet statements and take decisions accordingly. Thus, the purpose of accounting is to have a data ready which will be used by such external parties as investors and government organizations to take their decisions. Statement of Cash Flows Cash flow statement presents both the cash inflows and cash outflows of a company in a given period of time. Cash inflows are the revenues earned by a company in a specified period, cash outflows are the expenses incurred in the production process of the company. Statement of cash flow, thus, represents the liquid position of the company in a given time. Analysis of the cash flow statements is very essential for proper financial management of the organization. Thus, accounting should help the firm in managing its finances in a better way.

Profit and Loss Statement It is also known as the income statement. Profit and loss statement represents the profit of an organization in a given period. It represents the difference between the revenues, gains of the business and the expenses, losses of the business. Thus, the purpose of accounting, through this statement is to present before the investors and the managers, whether the organization has made money or lost money in a given period. Income statement is a major tool for financial planning in

a business. Accounting is also to plan, how much and in what areas the company will be putting its available finances. Trial Balance trial balance is a list of all the General ledger accounts (both revenue and capital) contained in the ledger of a business. This list will contain the name of the nominal ledger account and the value of that nominal ledger account. The value of the nominal ledger will hold either a debit balance value or a credit balance value. The debit balance values will be listed in the debit column of the trial balance and the creditvalue balance will be listed in the credit column. The profit and loss statement and balance sheet and other financial reports can then be produced using the ledger accounts listed on the trial balance.

B The importance and meaning of the fundamental accounting concepts Accrual Accounting An accounting method that measures the performance and position of a company by recognizing economic events regardless of when cash transactions occur. The general idea is that economic events are recognized by matching revenues to expenses (the matching principle) at the time in which the transaction occurs rather than when payment is made (or received). This method allows the current cash inflows/outflows to be combined with future expected cash inflows/outflows to give a more accurate picture of a company's current financial condition. The need for this method arose out of the increasing complexity of business transactions and a desire for more accurate financial information. Selling on credit and projects that provide revenue streams over a long period of time affect the company's financial condition at the point of the transaction. Therefore, it makes sense that such events should also be reflected on the financial statements during the same reporting period that these transactions occur.

Prudence Concept Accounting transactions and other events are sometimes uncertain but in order to be relevant we have to report them in time. We have to make estimates requiring judgment to counter the uncertainty. While making judgment we need to be cautious and prudent. Prudence is a key accounting principle which makes sure that assets and income are not overstated and liabilities and expenses are not understated.

For example when a company sells a TV to a customer who uses a credit card, cash and accrual methods will view the event differently. The revenue generated by the sale of the TV will only be

recognized by the cash method when the money is received by the company. If the TV is purchased on credit, this revenue might not be recognized until next month or next year.

Consistency Concept The concept of consistency means that accounting methods once adopted must be applied consistently in future. Also same methods and techniques must be used for similar situations. It implies that a business must refrain from changing its accounting policy unless on reasonable grounds. If for any valid reasons the accounting policy is changed, a business must disclose the nature of change, the reasons for the change and its effects on the items of financial statements. Consistency concept is important because of the need for comparability, that is, it enables investors and other users of financial statements to easily and correctly compare the financial statements of a company.

Going Concern Concept Financial statements are prepared assuming that the company is a going concern which means that the company intends to continue its business and is able to do so. The status of going concern is important because if the company is a going concern it has to follow the generally accepted accounting standards. The auditors of the company determine whether the company is a going concern of not at the date of the financial statements.

Accounting concepts: Materiality Accuracy, relevance and reliability are critical characteristics of good accounting information. The concept of materiality helps to reinforce those characteristics by classifying financial informations usefulness to its users. As such, materiality is a subjective concept. Whether financial data is material or not depends not just on its users but on its purpose. Material information defined as anything that influences the economic decisions of financial report users. In other words, materiality equates to importance or significance and pertains to financial data, transactions and even errors.

Business Entity Concept According to the concept of business entity business has a distinct and separate entity from its owners. In other words it means that for the purposes of accounting, the business and its owners are to be treated as two separate entities. The accounting records are made in the book of accounts from the point of view of the business unit and not that of the owner. Hence, when a person brings in some money as capital into his business, in accounting records, it is treated as liability of the business to the owner. The personal assets and liabilities of the owner are, therefore, not considered while recording and reporting the assets and liabilities of the business. Similarly, personal transactions of the owner are not recorded in the books of the business, unless it involves inflow or outflow of business funds. C The accounting system of each country is affected by different influential factors. As there is a very small possibility that influential factors of two countries will be equal, they can also be considered as generators of national specificities. The level of differences of each influential factor between countries implicates the intensity of accounting differences at the international level. The actuality of international accounting harmonization issues imposes the need of consideration and detailed examination of factors that influence the development and accounting system in one country. Considering the different classification of factors mentioned above, as well as factors which are extracted or specially emphasised in literature, some of them are described.

Manual Accounting

Manual accounting systems utilize several paper ledgers to record financial transactions. Companies have separate ledgers for each part of the accounting system, such as accounts payable, accounts receivable and sales. Accountants then consolidate these ledgers into one general ledger, providing the balance for each ledger. The general ledger notebook assists in creating financial statements. Manual Accounting Benefits

While tedious and time consuming, manual accounting systems offers some benefits. The ledgers are easy to review and accountants can make simple changes if necessary; individual accounts are easily reconciled because information is in a systematic order through each ledger.

Accountants also have the benefit of physically handling each ledger and creating notes in customer accounts regarding any issues that need clarification or corrections.

Computerized Accounting
o

Spreadsheets and accounting information systems require accountants to enter financial data into them, and then mathematical algorithms compute the information into the necessary ledgers and financial statements. Computerized systems also allow accountants to create trending analysis and report any variances quickly and accurately. Additionally, transactions from all company divisions are accessible through computerized accounting systems, giving accountants better access to financial information. Computerized Accounting Benefits

Computerized accounting offers several more benefits than manual accounting; accountants process more information quicker, formulas verify calculated totals and errors are less common. Accounting systems also are customizable by industry, allowing accountants the opportunity to use preset templates for their general ledger. Accountants also can store several years of financial information with relative ease, giving them the opportunity to review previous year's information without sorting through stacks of paper ledgers. Best Method

Most companies will use a computerized accounting system for recording and presenting their financial information. This system allows companies to record business transactions accurately and generate financial reports quickly for management review. While the functions of manual accounting have changed, it will never go away completely. Accountants must review the information presented on financial reports from the accounting system and ensure that it is accurate and valid. Accountants must also ensure that all financial information follows the Generally Accepted Accounting Principles and any other guidelines from regulatory agencies.

D Business risk A business risk is a circumstance or factor that may have a negative impact on the operation or profitability of a given company. Sometimes referred to as company risk, a business risk can be the result of internal conditions, as well as some external factors that may be evident in the wider business community.

Financial risk Financial risk management is the practice of creating economic value in a firm by using financial instruments to manage exposure to risk, particularlycredit risk and market risk. Other types include Foreign exchange, Shape, Volatility, Sector, Liquidity, Inflation risks, etc. Similar to general risk management, financial risk management requires identifying its sources, measuring it, and plans to address them. Financial risk management can be qualitative and quantitative. As a specialization of risk management, financial risk management focuses on when and how to hedge using financial instruments to manage costly exposures to risk.

Investment RiskCurrency moves can have profound effects on investments and their returns. Foreign holdings and subsidiaries can suffer significant currency translation losses upon consolidation or diverstiture. Management of Investment Risk would attempt to protect or increase the capital as well as any cash flows. Competitive RiskCurrency movement effects the competitiveness of many companies business both abroad and locally. Management of Competitive Risk would involve assessing and protecting pricing levels at which competitors can access the companys clients. Cash Flow RiskCurrency moves are typically found to affect budgeted revenues, earnings and cash flow by about 50% of the move over the current fiscal year. Management of Earnings Risk would attempt to provide revenues and earnings near or above the expected budget amounts of the current year.

The term Operational Risk Management (ORM) is defined as a continual cyclic process which includes risk assessment, risk decision making, and implementation of risk controls, which results in acceptance, mitigation, or avoidance of risk. ORM is the oversight of operational risk, including the risk of loss resulting from inadequate or failed internal processes and systems;human factors; or external events The Risk Manager is responsible to Senior Management for the following functions: 1. To comply with local insurance laws. 2. To select and manage insurance brokerage representatives, insurance carriers and other necessary risk management services providers. 3. To establish deductible levels. 4. To allocate insurance premiums.

5. To issue bonds and certificates as necessary. 6. To establish Risk Management policies and procedures 7. To actively participate on all contract negotiations involving insurance, indemnity, or other pure risk assumptions or provisions prior to the execution of the contracts. To establish indemnity and insurance standards for standard contract forms. Advice on the business risk of MonteHodge: Being a risk taker in business is not the same as being reckless. Nevertheless, the word risk has a negative connotation to most of us, implying danger and possible loss. For true entrepreneurs, risk is viewed as a positive, with its implied challenge to overcome the unknown and hitting the big return. In fact, risk is an integral part of life, as well as every business, yet so few people learn to manage it properly, or even want to think about it. One way to learn is to understand better how successful entrepreneurs approach risk, and look at actual strategies they use for success.

E Control system of the organization Internal control is a crucial aspect of an organizations governance and risk management systems, and is fundamental to supporting the achievement of the organizations objectives and creating and protecting stakeholder value. The process of planning, organizing, leading, executing, and controlling the activities of an organization to maximize value and minimize the risk of events that diminish value. Risk management covers all categories of risk including financial, strategic, operational, and reputational risks Depending on the type of risk, it can be managed in various ways, such as acceptance, avoidance, insurance, or via the implementation of internal controls. wick point of control system the organization authorizing control Security control in inter-organizational collaboration has different focus from single organization environments. In a single organization, the authorization control policy can be defined in terms of roles and their privileges with the adoption of Role Based Access Control (RBAC). Given a request to access a resource or perform an operation, the policy is enforced by analyzing the credentials of the requester and the decision is made on whether the requester can perform the requested actions.

computerizes control 1. The computer files are not human-readable. Controls must be installed to ensure that these files can be read when necessary. 2. The typical computer file contains a vast amount of data. In general, it is not possible to reconstruct such files from the memories of employees. 3. The data contained on computer files are in a very compact format. The destruction of as little as one inch of recording medium means the loss of thousands of characters of data. 4. The data stored on computer files are permanent only to the extent that tiny bits have been recorded on the recording tracks. Power disruptions, power surges, and even accidentally dropping a disk pack, for example, may cause damage. 5. The data stored on computer files may be confidential. Information such as advertising plans, competitive bidding plans, payroll figures, and innovative software programs must be protected from unwarranted use.

FINANCIAL AND MONITORING CONTROLS Internal Controls: Controls are organizational practices that help safeguard your assets and ensure that money is being handled properly. Controls help detect errors in accounting, prevent fraud or theft, and help support the people responsible for handling your organizations finances. Accounting Records (or Accounts Receivable and Payable): Establish a process that records every financial transaction by maintaining paper files, an electronic database, and copying all records in a virtual library.

physical control A current trend in security practice is to merge physical security and logical security across an organization. Physical security refers to any measures that an organization uses to protect its facilities, resources, or its proprietary data that are stored on physical media. Logical security uses technology to limit access to the organizations systems and information to only authorized individuals.

Improve control system Manage those risks and opportunities to be in line with the organizations risk management strategy designed to help its users identify, understand, and assess potential risks and opportunities and their interaction that might affect the organization applied in strategy setting, both across the organizations operations and in its stakeholder communications; effected and understood by the organizations governing body, management, and other personnel provide reasonable assurance regarding the achievement of organizational objectives and proper disclosure regarding the effectiveness of the risk management and internal control systems.

Risk of business fraud:

In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud.

Types of Fraud against Business The media is filled with stories of consumer victims of fraud. But the reality is that businesses, especially smaller enterprises, are more often the victims of fraud than consumers. The types of fraud can vary wildly, from accounting scams carried out by employees to fraudulent returns from customers to data theft by outsiders. Businesses have less protection than the consumer and, in some cases, can be held responsible in a business fraud scheme, owing liability to banks, shareholders, insurers, credit card processors and other entities. New laws also hold businesses accountable for liability in the event of some types of fraud perpetrated by third parties, such as data breaches.

Sources of Business Fraud In order to understand the types of fraud that your business may be vulnerable to, you must first understand the different sources of these crimes. Most professionals agree that the top sources of business fraud, ranked in the order of frequency and cost, are as follows:

Employees and Officers In previous surveys, PriceWaterhouseCoopers had found that the sources of crimes against business were evenly split between insiders and outsiders. But in the 2009 survey, the numbers tipped in favor of insiders carrying out the majority of crimes -- in 76 percent of the cases in the U.S., according to the survey. The increased financial pressures in many companies have also prompted a rise in the amount of fraud committed by middle managers, which now accounts for 42 percent of internal frauds globally from 26 percent in 2007, the survey found. Meanwhile, the Association of Certified Fraud Examiners (ACFE) (www.acfe.com) estimates that business organizations lose 5 percent of annual revenue to fraud by employees and officers.

Customers Customers can also be notorious for trying to perpetrate fraud against businesses. Whether writing bad checks, using stolen credit cards, returning items not purchased from a business, or filing fraudulent injury and liability claims, there are a whole host of schemes that customers can perpetrate that will cost your business money.

Contractors Businesses are often the target of unscrupulous contractors' overcharging, over billing, kick backs, failing to perform contracted work or service, and other actions.

Third-Party Attacks A growing number of types of fraud are being perpetrated by electronic means. Hacking, slamming (changing your telephone service without your knowledge), phishing (acquiring user names, passwords, credit card information), identity theft and other forms of business fraud are some of the most difficult to control. More businesses are being held accountable for data breaches perpetrated by third parties, as 45 states, the District of Columbia, and some U.S. territories now have laws on the books requiring companies to notify potential victims if their personal information has been stolen or otherwise compromised.

How to Protect Monte Hodge against Fraud:

=>Get specific information on claimed affiliates, including addresses and telephone numbers.

=>Fraudulent business operations generally use short term, low rent locations. Typical business frauds, not surprisingly, move around frequently. =>Fraudulent businesses often prefer mail drops. Using a mail drop gives a phony business a street number mailing address instead of just a box number. =>Strip "mini-warehouse" locations. These can give the bogus "wholesaler" the opportunity to move part of its stolen inventory at below cost to walk-in buyers. =>Be sure the address is appropriate to the type of business. Residential locations are unlikely for wholesale, retail or manufacturing lines of business.

=>The ship-to address is at a different location than the business address. You may be shipping goods to a temporary location from which it will soon disappear, as well the "offices" at the business address.

=>Ask for, and carefully check, a financial statement from a company before you grant a significant amount of credit or ship goods. =>Check assets to determine if they can be confirmed by other sources, or in the case of accounts receivable, that they are consistent in size with annual sales. =>Check the credentials of the person who prepared the statement. =>Is the statement heavy on assets but indicates little debt? Does it look just too good to be true? It probably is. =>Check the information by using a third-party: for instance, you can contact an individual at the business via a main telephone number to confirm the existence of affiliates and their relationship with the company requesting credit or merchandise from you. Contact the Secretary of State to check corporate charter information.

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