Most companies do not have written accounting policies and many are driven by the instructions in the accounting software to determine their policies and procedures. Such instructions are insuffucient and depending on it, leaves many firms incomplete in their accounting work. Just like designing an employee handbook that has a firm’s HR policies, firms’ need an accounting policies and procedures manual that tells employees how the company records its business transactions.
The accounting world and work can be divided into several discrete areas that are common to most businesses. These are Sales, Purchases, Manufacturing, Distribution, Accounts Receivable, Accounts Payable, Inventory, Banking, Payroll, Fixed Assests, which are all brought together through the principles of double entry via the General Ledger to produce reports. All these discrete areas are in the accounting software. It is in these discrete areas that a firm should start. The manual should lay down policies of accrual/cash accounting, revenue recognition, expenses accruals and prepayments, depreciation methods and Inventory recording and valuation. All this make the organization consistent in following accepted principles of accounting which go to produce quality financial reports. Closing dates and routines should also be covered.
It need not be elaborate, but when all areas are covered, any employee, especially in accounting knows what the company does to properly record its business transactions. This ensures nothing gets left and consistent principles are followed every time. Monthly accounting improves . Year end work is not any different from a regular monthly close, avoiding arrears or missed work. This also allows good training of employees. The accounting manual also becomes is a reference book to answer questions by employees.