The Accounting Policies and Procedures Professionals’ Manual reports, analyses, and verifies the financial gains and losses of a business.
A business accounting manual identifies all policies, guidelines, and company accounts statements.
There are two significant approaches to how the accounting team manages the organization’s profits, which are: Conservative and Aggressive policies. Businesses must follow accounting procedures when preparing financial statements and should disclose all information.
Shareholders and investors rely on accurate financial information to analyze statements in order to lend and invest in businesses.
For example, concrete proof of financial statements can be copies of receipts signed by the clients. This accounting policy integrates as an integral part of a better business model.
As per Generally Accepted Accounting Principles (GAAP), accounting policies can differ from one company to the other. That is the reason that accounting policies and procedures rules exist for each individual company to follow.
What Exactly are Accounting Policies and Procedures?
The Accounting Policies And Procedures Professionals’ Manual is a set of regulations that businesses follow to prepare for their profits and losses.
To prepare financial statements, the accounting management team collects all the data. Reports of earnings, losses, and goods must be in the statements.
Accounting policies can apply to various cases. These procedures can measure liabilities and assets and disclosures of accounting items.
The quality of accounting guidelines must be good to provide a standpoint of the financial affairs of the organization.
Accounting Policies And Procedures Selection Works In Favor Of Businesses Because:
- The accounting policies and procedures professionals’ manual states businesses should know the future hassles to deal with, such as liabilities, assets, and income.
Essentially, the accounting team can use such pitfalls as a direction for the organization’s accounting staff to better prepare financial statements.
- Accounting policies can help to maintain and present financial statements, which can help compare one business with other businesses.
- Accounting procedures generate accurate financial statements that will benefit the organization. This practice can bring in investors to better serve the business and decide if it is worth investing and lending money to the organization.
- Without accounting policies and procedures for professionals, the company wouldn’t have organized reports for its financial documents and financial affairs.
- These accounting principles would preserve internal rules, control procedures, and circumstances that the organization may encounter.
What are 2 Principal and Significant Accounting Policies?
When reporting earnings, companies apply accounting policies and procedures professionals’ manual rules to manifest in their business’s financial performance.
2 Significant Accounting Policies Are:
- Aggressive accounting policies and procedures can give misleading financial statements. This practice is deceiving to financial investors and business partners.
An example of aggressive accounting policies is the companies’ inflated earnings. Exaggerating companies’ earnings is a fraudulent practice employed with the purpose of making the company look attractive to investors.
Some aggressive accounting policies and procedures are legal, but others have questionable practices.
Aggressive accounting is not a safe method, according to business professionals. Most aggressive accounting policy practices turn to fraud.
- Conservative accounting policies and procedures are when businesses document profits, liabilities, and expenses instantly and record assets when earned. This declaration gives clear documentation in statements and reliability of financial statements.
An example of conservative accounting policies and procedures is: ‘XYZ’ company bought supplies at the time of purchase for $150. After acquiring the supplies, they are half price at $75. As a result, ‘XYZ’ company must record the current value of the asset at the lower cost of the asset, at $75.
However, if the goods sold for $150, and ‘XYZ’ company paid $200, they must show $150 in the statements.
As a result, the organizations make the revenue after selling inventory.
5 Most Important Accounting Policies And Procedures You Need To Know
According to the Generally Accepted Accounting Principles (GAAP) – five policies exist to apply for correct accounting representation and businesses’ financial aspects.
Accounting policies and procedures show in writing that an organized system analyzes accounting statements. Accountants must follow the guidelines of the professional manual to make accurate transactions.
Investors and shareholders trust organizations when exact accounting policies and procedures from financial statements show in the records.
Accounting policies and procedures have a list of guidelines. Organizations may follow these rules in order to prepare error-free financial statements.
Generally Accepted Accounting Procedures (GAAP) are:
1. Revenue Recognition Policies
Revenue recognition and accounting policies and procedures apply after the business fulfills its services — may collect earnings
For example, a freelancer completes their bookkeeping service – then collects their fee.
2. Objectivity Procedures
Accounting policy and objectivity procedures are used when a company wants a loan for its business purposes. The bookkeeper must collect companies’ financial statements and send them to the company’s financial institution. Thereafter, the bank decides whether it is worth investing money in the organization.
3. Matching Policies
Matching accounting policies and procedures are companies’ reported expenses matched with profit.
For example, in the month of February, ‘ABC’ company made a profit of $20,000 worth of commodities and expensed $2,000 in commissions. The matching policy requires that the $2,000 worth of commission be shown in the previous month’s statement. This scenario would be the month of January, estimating the commodities’ profit of $20,000.
4. Cost Accounting Policies And Procedures
Cost accounting policies show companies’ actual expenses per individual department.
An example of a direct cost accounting policy is expenses such as manufacturing, loans, rent of the building, and mitigation costs.
This runs opposite to indirect cost accounting policy, which covers salaries, wages, and benefits.
5. Full Disclosure Accounting Procedures
Full disclosure accounting procedures are the reporting of all gains and losses. All financial and non-financial information is accessible in the reports.
The non-financial statements are, for example, transactions, contracts, and changes in the organization.
Full disclosure of business finances gets trust from investors and shareholders.
An Accounting Policies and Procedures for Professionals’ Manual establishes a foundation for how businesses should measure assets and liabilities. Also, it operates and organizes company financial statements.
Organizations decide on establishing an accounting policy and procedures manual based on their company rules. The conclusion of the policies is based on studies and research on the company’s accounting management.
Accounting guidelines develop trust in the organization. It increases investors’ and shareholders’ confidence in the company.
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Written by Brenda Diaz