Accrual Based Accounting
Accounting Income vs. Economic Income
Accounting Controls Definition
Accounting controls, defined as the company policies which result in valid accounting, are essential for every single company. They can come in many forms: policies for transactions, processing of statements, filing paperwork like invoices, communication between departments involved in accounting, and more.
Accounting Controls Explanation
Accounting controls, explained also as the only method to creating reliable accounting, serve a variety of purposes. Mainly, accounting controls and procedures serve 3 purposes: organizing documents used in accounting, creating uniform financial statements, assuring the validity of transfers and expenditures. Though a variety of other controls, best practices, and policies exist they can be considered variations of this purpose.
Supporting documents are crucial to accounting. These documents, like invoices and previous financial statements, provide the data needed to begin accounting for company finances. Due to this fact, you must account supporting documents for themselves. Most companies have filing policies which ensure documents are accessible as needed.
Uniform Financial Statements
Uniform financial statements are the result of proper accounting controls. Policies, also known as accounting controls, regulate how data is processed and turned into financial statements. These policies must be very specific to make sure employees do not become confused on how to assemble statements. With accounting controls like auditing and account reconciliation, a company can make use of statements for financial as well as managerial accounting.
These controls also assure the validity of transfers and expenditures. With these policies in place, a company can feel more confident that theft is not occurring. Additionally, a business can make sure that finances are spent in a prudent manner. A company must make accounting controls which ensure that both of these matters are attended to.
Accounting Controls Example
McKenna is the CFO of a major fortune 500 company. She has been the CFO for this business before it created the success it now has. As such, she has created the accounting controls checklist which is now in place.
She first started by creating controls on expenditure of company monies. From her point of view, before the company has statements it must first make sure that it is not spending the funds it worked so hard for.
Then, McKenna created document policies. She needed to account for all the data she used to create statements. This policy ensures that she knows where all the important papers are and how to find them.
Finally, McKenna created policies for forming financial statements. In her opinion this came last; the first to support this.
McKenna had a hard time erecting these processes; employees took time to learn, resisted, and made mistakes. In some situations, she used software where she could not rely upon the human factor. In others, she put forth the effort to instruct and explain why these policies were so important. McKenna even made compromises and allowed for a learning curve. With this, people saw her as an office hero rather than a villain. McKenna is proud of herself, her employees, and the entire company for making such a pivotal change.
Accounting controls are a great way to prevent fraud, improve processes, and protect your company. Check out our free Internal Analysis whitepaper to see what accounting controls you are missing.
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