ACCOUNTING TERMS - ACCOUNTING DICTIONARY - ACCOUNTING GLOSSARY
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AUDIT Definition
AUDIT is the inspection of the accounting records and procedures of a business, government unit, or other reporting entity by a trained accountant for the purpose of verifying the accuracy and completeness of the records. It could be conducted by a member of the organization (internal audit) or by an outsider (independent audit). A CPA audit determines the overall validity of financial statements. A tax audit (IRS in the U.S.) determines whether the appropriate tax was paid. An internal audit generally determines whether the company's procedures are followed and whether embezzlement or other illegal activity occurred.
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GOING LONG is the purchase of commodities, bonds, or stock with no immediate intention of selling them, i.e. the purchase is for long term investment or speculation. See GOING SHORT.
STARTUP COSTS or Organization Cost, in the U.S., is when a new corporation is created, the costs associated with the formation are not deductible. An election must be made to amortize organizational costs no later than the due date (including extensions) of the return for tax year in which the active trade or business begins. If an election is not made to amortize these costs, they must be capitalized on the books and are not subject to amortization resulting in permanent capitalization. Upon making the timely election, the corporation may recover these costs through amortization deductions over a 60 month period. Organizational expenditures include any expenditure which is:
- incident to the creation of the corporation,
- chargeable to capital account, and
- is of a character which, if expended incident to the creation of a corporation having a limited life, would be amortizable over such life.
The following are examples of organization costs:
- legal services incident to the organization of the corporation, such as drafting the corporate charter, by-laws, minutes of organizational meetings, terms of original stock certificates, etc.
- necessary accounting services.
- expenses of temporary directors and of organizational meetings of directors or stockholders.
- fees paid to state of incorporation.
