Accounting is paramount to the progress of a business, and therefore demands discipline in its functioning through well defined policies & procedures. Accounting policies and procedures help an organization to standardize its accounting practices, which in turn ensure:
- Accuracy and efficiency in accounting
- Appropriate control to prevent fraud and protect key assets
- Updation and documentation of the closing procedure
- Generation of financial statements and related management reports
- Creation of comparative reports and studies with the help of historical accounting data for benchmarking and other needs.
A standardized accounting policy allows new employees to learn and perform quickly. You might find it challenging to write accounting policies or procedures, but they will help you in the long run because they will keep processes simple and universal.
What Are Accounting Policies and How Do They Work?
Accounting policies are the precise rules and guidelines to conduct business transactions and prepare the financial statements. Any accounting methodologies, measuring systems, and disclosure presentation procedures fall under accounting policies.
Depending on a company’s goals, accounting policies might be conservative or aggressive.
Accounting policies should be fully disclosed so that potential investors can better understand a company’s financial statements.
Accounting policies may be different in different companies but they usually adhere to one of two accounting standards: Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS).
What are accounting procedures?
An accounting procedure is a standardized method for carrying out a task in the accounting department. Accounting procedures are developed to quickly execute a task and apply adequate controls to reduce the risk of loss. A method can also be created as a training tool for employees, who can read it to get a better grasp of their new responsibilities.
Following are some common examples of accounting procedures:
- Billing for the customers.
- Clearing payments to the suppliers .
- Payroll calculations for employees
- Valuation of fixed assets
- Calculation of depreciation for fixed assets.
- Remove fixed assets from the equation.
- Reconcile your bank accounts
How to develop accounting policies & procedures for a small business?
Process Standardization Improves Quality, Productivity, And Morale
- Make a plan to denote each accounting process, such as accounts payable, accounts receivable, and fixed assets; each should have its own section. Assign a number to each policy and procedure (P&P) and utilize the numbering system to organize the paperwork. For instance, all accounts receivable P&Ps may begin with a 1, whereas accounts payable P&Ps could begin with a 2. So, if you’re looking for a specific bill-paying paper, seek for the 2 series and you’ll find it quickly, perhaps as a 201 or 2001.
- Use a template to make the documentation simple to develop and comprehend. Consider using a format that includes a standard label with the name, date, document number, and other information at the top. Below that, a section called “Purpose” might be added to the website to clarify the P&P’s aim, and then the real narrative of the process you wish to communicate may begin.
- Write in a clear and concise manner, using proper spelling and punctuation. Because policies and procedures will be used by a large number of individuals, make them foolproof and simple to understand. Instead of using people’s names, use the designation or position name. To avoid confusion, keep your writing consistent. For instance, if you have to refer to a clerk filing bills in the accounts department, do not mention him as “Clerk I” in one P&P and “Filing Clerk” in another.
- Make sure your rules and procedures are built with adequate internal controls in mind. The bookkeeper, for instance, should not be permitted to sign checks. All check disbursements should be accompanied by signatures from the finance head or the owner, attesting to the fact that the purchase was authorized and that all services and items were received properly.