Accounting Policies and Procedures Manual

A Blueprint for Running an Effective and Efficient Department

Steven M. Bragg

• Publisher: Wiley
• Year: 2012
• ISBN:
  9781118428665
• Edition: 5
• Topic: Business
• Subtopic: Managerial Accounting
• Index: Business

Now in a fifth edition, Accounting Policies and Procedures Manual: A Blueprint for Running an Effective and Efficient Department is a how-to guide on creating an effective and efficient accounting department policies and procedures manual.

Written by Steven Bragg, the foremost authority in accounting and controllership issues, the new edition includes:

• A new, complimentary Web site providing readers with the foundation for creating or enhancing their accounting department policies and procedures manual
• More coverage of accounting procedures including inventory, billing, cash receipts, pricing, order entry, credit, collections, sales returns, capital budgeting, cash forecasting, payroll, and closing the books

Accounting Policies and Procedures Manual is the tool every accounting department needs to regularize and systematize its procedures to match the best in the industry.

Chapter 1

ACCOUNTING MANUALS

1.1 INTRODUCTION

Ask a dozen accountants to name the major method of communicating in their accounting operations and they will probably describe the accounting manual. However, you will get 12 answers about what the manual is, varying from a simple listing of account names and numbers to an academic treatise of the philosophy and practice of accounting as used in that particular environment.

In its simplest form, the accounting manual documents the meaning of sets of descriptive numbers used in an organized manner to record, summarize, and report information. It may contain descriptions of one or more of the systems and procedures that explain the basic accounting structure of the enterprise.

However, the manual can be much more than numbers and definitions. It may contain organization charts to show responsibility and lines of authority, policy, formulas, clerical procedures, special industry terminology, data processing rules and procedures, forms descriptions and uses, and so on. It is the general map through which one can learn to travel through a company’s operations.

Every business enterprise has an accounting system, from the self-employed person operating a small business out of his or her home to charitable, not-for-profit organizations, educational institutions, governmental agencies, industrial and service companies, and so on. The system may be completely undocumented, possibly just a checkbook and a list of receipts, or it may be an elaborate, difficult-to-maintain, small library of books and manuals used by large national and international companies.

An accounting manual has three basic purposes: to answer questions, to instruct accounting personnel, and to provide consistent reporting of business transactions. As a printed document, it must be useful and, more importantly, used. Therefore, it should be formal—not in the sense of being rigid and unyielding, but in the sense of being complete and consistent.

It should be available to all who need it or think they need it. Certainly, the accounting staff needs the manual. Also, line supervisors, managers, and others who submit accounting data should have the manual available to them.

It should always be current, a condition requiring a method of publishing changes, additions, and deletions very quickly (see the discussion of electronic methods of distribution in Chapter 4). Finally, the manual should be easy to use as a tool to answer questions of consistency, accuracy, and clarity of presentation.

A word of warning: Unless the contents of a manual are to be used exclusively by accountants in the accounting operation, the accountants must turn their terminology into our terminology—that is, terminology that can be understood by non-accountant users of the manual. Avoid accounting jargon at all times.

For reference purposes, accounting manual, as used in this book, includes all the modules described in this chapter. The reader has the choice of developing selected modules and combining them into one accounting manual or maintaining each one as a separate manual. The modules are:

• General accounting manual
• Corporate policies manual
• Accounting procedures
• Purchasing card manual
• Accounting controls manual
• Year-end manual
• Budgeting manual
• Property accounting manual
• Forms manual
• Document management manual
• User manual
• Information technology manual
• Human resources manual

Each of these modules is briefly described in the following sections, and more fully described in the indicated chapters.

1.2 GENERAL ACCOUNTING MANUAL

The general accounting manual includes a general description of the overall accounting system, the chart of accounts, account descriptions, activities calendars for the accounting staffing, accounting policies, and descriptions of the key process cycles. Parts of the general accounting manual are usually included in the user manual to provide account coding information to other departments, such as purchasing and receiving, so that they can code transaction documents or otherwise provide accounting information. The general accounting manual is covered in Chapter 2.

The chart of accounts is the basic underlying account code structure that is used to record information in the general ledger. To create the chart, one prepares a list of every account number and name, which should include every asset, liability, ownership, income, and expense item. Then a one or two sentence definition is written for each line item in the chart of accounts. The list of definitions developed here will be the primary reference of permitted actions—and, more importantly, those that are not permitted—in each account being used. If divisions or departments are included in the corporate structure, then the account code structure can be stretched into a longer format to accommodate codes that can be traced to specific operating entities within the organization.

Job descriptions are extremely useful for determining which employee positions are responsible for which tasks, as well as to form a basis for periodic job reviews. These descriptions are most easily compiled by interviewing the staff members to see what they already do; on an ongoing basis, the descriptions can be adjusted to shift work among personnel to achieve increased levels of efficiency.

An activities calendar should be constructed not only for the entire department but also for each person within it. An activity calendar should itemize exactly which tasks should be completed on each day of the month. It forms the basis for task assignments within the accounting department, and is an excellent visual tool for managing the department’s function. The calendar will be in a constant state of flux, as work tasks are constantly shifted among different staff members or moved to different time slots to create a balanced work flow for the department as a whole.

A more complete manual would contain a section on accounting principles and general procedures. For example, the company might indicate that it follows a published industry account numbering and format procedure, or that it operates in accordance with control guidelines laid down by the American Institute of Certified Public Accountants (AICPA).

Finally, the manual may contain flowcharts of the principal process cycles used by the company (such as the purchasing and order fulfillment cycles) as well as related procedures. The documentation of these key underlying activities gives the reader a broad conceptual overview of how the key accounting activities work, and how documents flow from function to function in order to complete tasks.

1.3 CORPORATE POLICIES MANUAL

Corporate policies are needed to set up boundaries within which transactions are to be accepted, and for how those transactions are to be processed. Policies are necessary components of a comprehensive system of controls and form an integral part of a company’s risk management system. Chapter 5 contains nearly 250 policies for many transactional areas, including cash, hedges, barter transactions, inventory valuation, intangible assets, research and development costs, investments, debt extinguishment, warrants, lease terminations, dividends, options, and foreign currency translations. Though not all of these policies will be needed by any one company, a selection of the policies could form the foundation of a company’s corporate policies manual.

1.4 ACCOUNTING PROCEDURES

The accounting procedures used must be clearly stated in a consistent format. To aid in the construction of such a manual, Chapter 3 itemizes a number of key writing, style, and mechanics guidelines. It also describes how to create an understandable flowchart that can accompany a procedure, including the most common direction of flow and types of graphics to use. The chapter also notes how to calculate and interpret readability statistics for a procedure. In addition to these general guidelines, the chapter describes how to lay out a simple procedure format and accompanying header, which are used in all subsequent chapters whenever example procedures are shown. Next, we cover the key work steps needed to construct a procedures manual, itemizing the process flow required to ensure that the information contained within a procedure is accurate. Finally, there is an itemization of suggested procedures that can be used. This list is by no means complete, because accounting systems will vary widely by industry, and even between companies within the same industry; nonetheless, it provides a core set of procedures that can be expanded upon to create a complete set of company-specific procedures.

With the basic procedure construction information in hand, one can then proceed to the creation of actual accounting procedures. Chapter 6 assists in this proce...