Accounting Best Practices, 3rd Edition - womlib.ru

1 AccountingBest PracticesThird 7/31/03 8:45 AM Page iAccountingBest PracticesThird EditionSteven M. BraggJohn Wiley & Sons, 7/31/03 8:45 AM Page iiiThis book is printed on acid-free paper. Copyright 2004 by John Wiley & Sons, Inc., Hoboken, New Jersey. All rights simultaneously in CanadaNo part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning,or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorizationthrough payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc.,222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-750-4470, or on the Web at Requests to the Publisher for permission should be addressed to thePermissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030,201-748-6011,fax of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect tothe accuracy or completeness of the contents of this book and specifically disclaim any impliedwarranties of merchantability or fitness for a particular purpose.

2 No warranty may be createdor extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professionalwhere appropriate. Neither the publisher nor author shall be liable for any loss of profit or anyother commercial damages, including but not limited to special, incidental, consequential, orother general information on our other products and services, or technical support, please contact our Customer Care Department within the United States at 800-762-2974, outside the United States at 317-572-3993 or fax also publishes its books in a variety of electronic formats. Some content that appears inprint may not be available in electronic more information about Wiley products, visit our Web site at of Congress Cataloging-in-Publication Data:Bragg, Steven best practices / Steven M. Bragg. 3rd 0-471-44428-6 (CLOTH)1. Accounting . I. 2003657 dc212003006629 Printed in the United States of 7/31/03 8:45 AM Page ivMany capabilities originate through the direct assistance of parents in one s childhood.

3 In my case, reading with the voraciousness of a predator came from my parents,one of whom tirelessly read books to me as a toddler,while the other constantly expanded my vocabulary withmandatory definition reviews from the dictionary. I also picked up a few especially choice words whenever mydad banged his thumb with a hammer. Mom and Dad,thank you once 7/31/03 8:45 AM Page vviAbout the AuthorSteven Bragg, CPA, CMA, CIA, CPIM,has been the chief financial officer orcontroller of four companies, as well as a consulting manager at Ernst & Youngand auditor at Deloitte & Touche. He received a master s degree in finance fromBentley College, an MBA from Babson College, and a bachelor s degree in eco-nomics from the University of Maine. He has been the two-time president of the10,000-member Colorado Mountain Club, and is an avid alpine skier, mountainbiker, and rescue diver. Mr. Bragg resides in Centennial, Colorado. He is the author of AdvancedAccounting Systems(Institute of Internal Auditors, Inc.)

4 , 1997), and the followingbooks from John Wiley & Sons, Inc.: Accounting and Finance for Your Small BusinessAccounting best PracticesAccounting Reference DesktopBusiness Ratios and FormulasThe Controller s FunctionControllershipCost AccountingDesign and Maintenance of Accounting ManualsEssentials of PayrollFinancial AnalysisGovernment Accounting best PracticesJust-in-Time AccountingManaging Explosive Corporate GrowthThe New CFO Financial Leadership ManualOutsourcingSales and Operations for Your Small 7/31/03 8:45 AM Page viContentsPrefaceviiiChapter 1 Introduction1 chapter 2 How to Use best Practices4 chapter 3 Accounts Payable best Practices17 chapter 4 Billing best Practices66 chapter 5 Budgeting best Practices87 chapter 6 Cash Management best Practices110 chapter 7 Collections best Practices128 chapter 8 Commissions best Practices154 chapter 9 Costing best Practices167 chapter 10 Filing best Practices184 chapter 11 Finance best Practices206 chapter 12 Financial Statements best Practices225 chapter 13 General best Practices253 chapter 14 General Ledger best Practices290 chapter 15 Internal Auditing best Practices308 chapter 16 Inventory best Practices325 chapter 17 Payroll best Practices346 Appendix A Summary of best Practices376 Index389viiIMPORTANT NOTE.

5 Because of the rapidly changing nature of information in this field, this prod-uct may be updated with annual supplements or with future editions. Pleasecall 1-877-762-2974 or e-mail us at to receiveany current update at no additional will send on approval anyfuture supplements or new editions when they become available. If you pur-chased this product directly from John Wiley & Sons, Inc., we have alreadyrecorded your subscription for this update 7/31/03 8:46 AM Page viiPrefaceThe Accounting department is a cost center. It does not directly generate revenues,but rather provides a fixed set of services to the rest of a company, and is asked todo so at the lowest possible cost. Consequently, the Accounting staff is calledupon to process transactions, write reports, create new processes or investigateold ones while doing so as an ever-shrinking proportion of total cost-based environment is a very difficult one for most accountants, fortheir training is primarily in Accounting rules and regulations, rather than in howto run a very specialized department in a cost-effective manner.

6 They find a fewideas for improvements from attending seminars or perusing Accounting or man-agement magazines, but there is no centralized source of information for them toconsult, which itemizes a wide array of possible improvements. Hence the needfor the third Edition of Accounting best book is compiled from the author s lengthy experience in setting up andoperating a number of Accounting departments, as well as by providing consult-ing services to other companies. Accordingly, it contains a blend of best practicesfrom a wide variety of Accounting environments, ranging from very small part-nerships to multibillion-dollar corporations. This means that not all of the bestpractices described within these pages will be useful in every situation someare designed to provide quick and inexpensive, incremental improvements to anoperation that can be installed in a day, while others are groundbreaking eventsthat require six-figure investments (or more) and months of installation will only work for companies of a certain size, and should be discarded asmore expensive and comprehensive Accounting systems are installed it all dependson the situation.

7 Consequently, each chapter includes a table that notes the ease,duration, and cost of implementation for every best practice within it. The bestpractices are also noted in summary form in Appendix third Edition of best Practicescontains 60 new best practices . These areconcentrated in the areas of internal auditing, accounts payable, finance, and pay-roll. Some of the best practices involve solutions that have been posted on variousInternet sites, but there are fewer of these best practices than appeared in the sec-ond Edition . Indeed, a great many Internet sites listed in the second Edition haveclosed down, requiring the author to remove three best practices that had beenlisted in that book. The area of application service providers has been especiallyhard hit, with about two-thirds of the providers listed in the second Edition havingshut their doors in the past two 15 is new, containing 19 best practices for the internal auditing func-tion. Though this area sometimes falls outside of the Accounting function byreporting directly to the auditing committee of the board of directors, it 7/31/03 8:47 AM Page viiicommonly reports to the chief financial officer, and therefore a discussion ofimprovements to it appears relevant for this payable remains the area with the largest concentration of bestpractices, with the total now rising to 40 just in this area.

8 A number of risk man-agement and investor management best practices have also been added to thefinance chapter , as well as a smattering of best practices to a half-dozen otherchapters. The result is 292 best practices to assist the reader in creating a moreefficient and effective Accounting the large number of best practices in this book, it would have becomequite difficult to locate specific items under the structure used in the second edi-tion. Accordingly, a table has been added to the front of each chapter , itemizingby subcategory the best practices located within it. For example, the accountspayable chapter sorts best practices into the categories of approvals, credit cards,documents, expense reports, management, payments, purchasing, and reference number is assigned to each best practice in the table, which one canthen use to find the best practice within the chapter . The tables also graphicallydescribe the cost and duration of implementation required for each item, which isrepeated throughout the text that follows the descriptions of each best additional ease of indexing, these tables are collected into Appendix , a selection of best practices have an Author s Choice icon postednext to them.

9 These best practices are those the author has found to be particu-larly effective in improving Accounting you have any comments about this book, or would like to see additionalchapters added to future editions, please contact the author at you!STEVENM. BRAGGC entennial, ColoradoMarch 7/31/03 8:47 AM Page ixxAcknowledgmentsA special note of thanks to the managing editor on this project, John DeRemigis,who first conceived the idea of a best practices 7/31/03 8:47 AM Page xChapter 1 IntroductionA chief executive officer (CEO) spends months deciding on a corporate plan probably includes a mix of changes in products, customers, and markets,as well as demands for increased efficiencies or information in a number of exist-ing areas. The CEO then hands off the plan to a group of managers who are quitecapable of implementing many of the changes, but who scratch their heads overhow to squeeze greater efficiencies or information out of existing departments inorder to meet their strategic goals.

10 This is where best practices come into best practice is really anyimprovement over existing systems, thoughsome consultants prefer to confine the definition to those few high-end and veryadvanced improvements that have been successfully installed by a few world-class companies. This book uses the broader definition of any improvement overexisting systems, since the vast majority of companies are in no position, either interms of technological capabilities, monetary resources, or management skill, tomake use of truly world-class best practices . Using this wider definition, a bestpractice can be anything that increases the existing level of efficiency, such asswitching to blanket purchase orders, signature stamps, and procurement cards tostreamline the accounts payable function. It can also lead to improved levels ofreporting for use by other parts of the company, such as activity-based costing,target costing, or direct costing reports in the costing function.