What is an Accounting Manual?

What is an Accounting Manual? Accounting manual is a document in which every
organization defines its accounting policies and procedures – in this article, we give
an overview of its goals and contents. An accounting manual is a document in which
every organization defines its accounting policies and procedures. Each organization is unique and therefore
creates its own accounting manual. Even two companies in the same industry may
have different accounting manuals. The extension of the accounting manual will
depend on: the size of the organization; the number of employees; the type of product and
service the organization offers; the region in which operates. The aim of keeping an accounting manual is:
To ensure accurate, efficient and transparent financial management. To ensure that the financial statements conform
to generally accepted accounting principles. Establish an accounting reference base, whether
for revisions, improvements, training or changes. To safeguard all business assets. To provide accounting and financial guidelines. Consider that the accounting manual content
may differ in scheme and length depending on the type and size of the business. In general, we can say that an accounting
manual contains the following elements: Division of responsibilities; The balance sheet; Income
statement Journal; Chart of accounts and general ledger;
Accounting accruals; Cash flow statement; Bank reconciliations; Inventory accounting;
Cost accounting; Internal control; Property and equipment; Payroll processing; End of
month and fiscal year-end close.

Let’s see each of them in more detail below:
This section establishes the responsibilities for: the board of directors; executive directors;
managers; bookkeepers. It defines the responsibilities on development,
reviews, execution and follow-up of: budget; management of contracts; incoming and outgoing
invoices; allocations, expenses, accounting, and financial reports. This section shows the company’s assets,
liabilities, and equity. It shows how changes in any one of these affect
the other two. It is defined how the company records the
earning and expenses for the offered goods and services. This section is based on the basic accounting
formula that states: Assets = Liabilities + Equity in which: Assets are all the valuable
things owned by a company. Liabilities are all the debts and money owed
to others by the company. Equity summarizes the number of investments
in the company as well as the company’s earnings.

The income statement is also called profit
and loss statement (P&L), revenue statement or operating statement. The income statement shows the company’s
revenues and expenses during a period of time. The main categories include revenues, expenses,
and income or profit. The income statement provides information
on how and when the earnings on the balance sheet arrive. The revenues can be shown per product family,
region or business unit. It defines the allocation of cost and expenses
and the operating profit before and after taxes. A journal shows how the company keeps track
of all its business transactions.

The journal records each transaction and includes:
nature of transaction; the date of the transaction; the entities
involved (i.e. a customer, a supplier, an employee, etc.); the amount of the transaction;
the result in the transaction. In this section, the organization defines
an account plan and a ledger for all its operational processes. It also includes the needs of its financial
statements. The account plan is structured so that the
financial statements can be shown by the type of expenditure. The ledger is automated using accounting software
and records all the general ledger codes. General ledger accounts describe the type
of asset, liability, revenue or expense. General ledger accounts don’t change from
year to year, letting organizations compare financial reports from year to year. The general ledger is broken down following
number codes into the following ranges: Assets; Liabilities; Equity; Revenue; Expenses.

This section states the accrual policies and
procedures. Accrual accounting means that revenues are
recorded when they are earned. The general idea is that economic events are
recognized by matching revenues to expenses at the time in which the transaction occurs
rather than when payment is made or received. Any organization may accrue recurring expenses
to ensure the timely closing of the general ledger.

The purpose of a statement of cash flows is
to provide details on the changes in cash and during a period. The total amount of cash and cash equivalents
at the beginning and the end of the period shown in the statement of cash flows should
be the same as similarly titled line items or subtotals shown in the balance sheet as
of those dates. A statement of cash flows is required to differentiate
among cash flows from operating, investing and financing activities. This section states the banks transaction
policies and procedures.

The bank reconciliation is the process of
matching the balances in a company’s accounting records for a cash account to the corresponding
information on a bank statement. The purpose is to ensure that all the company’s
cash records are correct. In this section it will define the criteria
to follow for material inventory and the method that the organization adopts: FIFO (First
In First Out) system; LIFO (Last in First Out) system; Item by item; Average cost system. This section will include the cost accounting
system used for allocating costs and expenses. For example, the total cost of a landed shipment
including purchasing price, freight, insurance, and other costs up to the warehouse.

The allocation can be defined per department,
region or project. It also includes criteria to be followed for
manufacturing costing. As the material and resources are incorporated
into each work station, the products suffer added value. Therefore, the labor, energy, and other resources
are gradually imputed to the product cost. Finally, the organization will get product
cost, when the product reaches the warehouse. It also defines criteria for allocating direct
and indirect costs. An example is a way of calculating the maintenance
or sanitation costs in the final product costing. Internal controls include all policies and
procedures that: keep reporting systems reliable; Integrates the company’s accounting software
with other platforms; safeguard assets; prevent errors and fraud; optimizes the use of resources. This section includes the management of fixed
assets. A fixed asset is a long-term tangible piece
of property or equipment that a firm owns and uses in its operations to generate income. It defines the review of all the records,
its physical inspection, and inventory of all fixed assets. It considers the reconciliation with the balances
of the general ledger.

It also determines the assets depreciation
and leasing policies. Some of the most relevant fixed assets that
a company may have are: 1.Buildings. 2.Machinery and equipment. 3.Vehicles. 4.Office furniture. 5.Hardware and Software. This section includes payroll treatment. It includes among others: Staff payroll. Salaries, licenses and vacation periods of
staff. Maintenance of work time records. incorporation and elimination of new employees. Form of deposit to a designated bank account. Personnel expense policy. Tax declarations and associated aspects. This section includes the execution, revision,
filing and signing of all the end of the month and the end of the year accounting entries. The balance sheet accounts to be considered
at the end of each fiscal period includes: Cash accounts. Fixed asset accounts. Income and expense accounts. Federal and state tax returns. Annual declaration. Other governmental documents..

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