General Accounting Procedures

Definition of Accounting Procedures

                

                       Accounting is no longer limited to debits and credits, and the old description of accountants as bean counters is certainly a myth. Accountants now play a significant role in modern economies, especially when it comes to setting adequate financial-reporting rules and procedures. Companies rely on these procedures to report accurate accounting statements.

Identification

1. • An accounting-procedures handbook opens a pathway to understanding how a company runs its operations. Because procedures tell the tale of a company's operating activities, top executives spend considerable time ensuring that policies conform to laws and regulations. Specifically, accounting procedures concern how an organization records day-to-day transactions, prepares financial results and reports operating statements. Equally important, policies inform the public and investors about internal controls that are in place in key processes. Controls are instructions that an accounting department head establishes to prevent losses resulting from fraud, error or theft.

   Internal Controls

   • In the corporate context, top leadership understands that actions speak louder than words. Establishing procedures without the right operating environment may be an inadequate long-term strategy. Consequently, corporate executives draw up sound control strategies to rein in waste, monitor operating activities and ensure regulatory conformity. For example, a company's management may establish policies concerning the segregation of duties, periodic customer account reviews and the retention of accounting records. Segregation of duties ensures that a single employee doesn't perform two functions in the same accounting process  for instance, receiving customer payments and depositing checks at the bank.
   • Regulatory Compliance
   • In establishing accounting procedures, corporate management keeps a close eye on regulatory guidelines, industry practices and internal policies. The fact is, various organizations influence accounting policy-making in modern-day economies. In the U.S., the Securities and Exchange Commission and the Financial Accounting Standards Board provide recommendations concerning corporate accounting procedures. Conceptually, the Public Company Accounting Oversight Board and the American Institute of Certified Public Accountants also contribute to accounting rule-making. Government agencies, nonprofits and academic institutions pay attention to rules that the Federal Accounting Standards Advisory Board promulgates.

   Bookkeeping

   • Bookkeeping is at the heart of accounting. Also known as junior accountants, bookkeepers record a company's daily activities through debits and credits in financial accounts. These accounts include assets, liabilities, revenues, expenses and equity items. Assets are what a firm owns, including cash, customer receivables, land and inventory. Liabilities are corporate debts. Expenses include rent, labor charges, insurance and materials' costs. Revenues are earnings from sales of goods and services. Equity consists of a firm' s ownership capital.

   Financial Reporting

   • Financial reporting is integral to adequate accounting policy-making. An adequate bookkeeping-policy handbook does not translate into accurate financial results. To make sure accounting entries are accurate and financial reports in line with accounting rules, management adds a second layer of supervision. Departmental heads and segment chiefs review preliminary reports and work in tandem with a company's controller to ensure accuracy of final results. Financial data sets include balance sheets, income statements, cash flow statements and equity reports.

     
     

     
     

     Statutory accounting principles

     
     

     The Statutory Accounting Principles are a set of accounting rules for insurance companies set forth by the National Association of Insurance Commissioners. They are used to prepare the statutory financial statements of insurance companies. With minor state-by-state variations, they are the basis for state regulation of insurance company solvency throughout the United States.

     Financial Accounting Cycle

     
     

     The financial accounting cycle is the process of recording business transactions and processing accounting data to generate useful financial information i.e. financial statements including income statement, balance sheet, cash flow statement and statement of shareholders equity. The time period principle requires that a business should prepare its financial statements after a specified period of time, say a year, a quarter or on a monthly basis. This is achieved by following the accounting cycle during each period. Accounting Cycle starts from recording individual transactions in the books of accounting and ends at the preparation of financial statements and closing process.

     
     

     
     

     Major Steps in Accounting Cycle

     The major steps involved in the accounting cycle are:

     1. Analyzing and Recording Transactions via Journal Entries
     2. Posting Transactions to Ledger Accounts
     3. Preparing Unadjusted Trial Balance
     4. Preparing Adjusting Entries at the end of the Period
     5. Preparing Adjusted Trial Balance
     6. Preparing Financial Statements
     7. Closing Temporary Accounts via Closing Entries
     8. Preparing Post Closing Trial Balance

     
     

     
     

     Accounting Cycle Flow Chart