Accounting Policies and Procedures Manua

JWPR023-Bragg-FM JWPR023-Bragg July 18, 2007 18:24 Char Count= 0

Accounting Policies and

Procedures Manual

i

JWPR023-Bragg-FM JWPR023-Bragg July 18, 2007 18:24 Char Count= 0

Update

Service

BECOME A SUBSCRIBER!

Did you purchase this product from a bookstore?

If you did, it’s important for you to become a subscriber. John Wiley & Sons, Inc. may publish, on a periodic basis,

supplements and new editions to reflect the latest changes in the subject matter that you need to know in order to

stay competitive in this ever-changing industry. By contacting the Wiley office nearest you, you’ll receive any

current update at no additional charge. In addition, you’ll receive future updates and revised or related volumes on

a 30-day examination review.

If you purchased this product directly from John Wiley & Sons, Inc., we have already recorded your subscription for

this update service.

To become a subscriber, please call 1-800-225-5945 or send your name, company name (if applicable), address,

and the title of the product to:

mailing address: Supplement Department

John Wiley & Sons, Inc.

One Wiley Drive

Somerset, NJ 08875

e-mail: [email protected]

fax: 1-732-302-2300

online: www.wiley.com

For customers outside the United States, please contact the Wiley office nearest you:

Professional & Reference Division John Wiley & Sons, Ltd.

John Wiley & Sons Canada, Ltd. Baffins Lane

22 Worcester Road Chichester

Rexdale, Ontario M9W 1L1 West Sussex, PO19 1UD

CANADA ENGLAND

(416) 675-3580 Phone: (44) 1243 779777

Phone: 1-800-567-4797 Fax: (44) 1243 770638

Fax: 1-800-565-6802 [email protected]

[email protected]

Jacaranda Wiley Ltd. John Wiley & Sons (SEA) Pte. Ltd.

PRT Division 37 Jalan Pemimpin

P.O. Box 174 Block B # 05-04

North Ryde, NSW 2113 Union Industrial Building

AUSTRALIA SINGAPORE 2057

Phone: (02) 805-1100 Phone: (65) 258-1157

Fax: (02) 805-1597 Fax: (65) 463-4604

[email protected] [email protected]

ii

JWPR023-Bragg-FM JWPR023-Bragg July 18, 2007 18:24 Char Count= 0

Accounting Policies and

Procedures Manual

Fifth Edition

A Blueprint for Running an Effective

and Effi cient Department

Steven M. Bragg

iii

JWPR023-Bragg-FM JWPR023-Bragg July 18, 2007 18:24 Char Count= 0

Copyright
C 2007 by John Wiley & Sons, Inc. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Wiley Bicentennial Logo: Richard J. Pacifico.

Published simultaneously in Canada.

No 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 authorization through

payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923,

(978)-750-8400, fax (978)-646-8600, or on the web at www.copyright.com. Requests to the Publisher for permission should be

addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201)-748-6011, fax

(201)-748-6008, or online at http://www.wiley.com/go/permissions.

Limit of Liability/Disclaimer of Warranty:While the publisher and the author have used their best efforts in preparing this

book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and

specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or

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 professional where appropriate. Neither the publisher nor the author shall be liable for

any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other

damages.

For 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 (317)-572-4002.

Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in

electronic books.

For more information about Wiley products, visit our Web site at www.wiley.com.

Note: The previous edition of this is titled Design and Maintenance of Accounting Manuals: A Blueprint for Running an

Effective and Efficient Department, Fourth Edition

Library of Congress Cataloging-in-Publication Data

Bragg, Steven M.

Accounting policies and procedures manual : a blueprint for

running an effective and efficient department / Steven M. Bragg. – 5th ed.

p. cm.

Rev. ed. of: Design and maintenance of accounting manuals /

Steven M. Bragg, Harry L. Brown. 4th ed. c2003.

Includes index.

ISBN 978-0-470-14662-0 (cloth/website)

1. Accounting–Handbooks, manuals, etc. – Authorship. I.

Bragg. Steven M. Design and maintenance of accounting manuals.

II. Title.

HF5636.B8315 2007

808.066657–dc22

2007025170

Printed in the United States of America

10 9 8 7 6 5 4 3 2 1

iv

JWPR023-Bragg-FM JWPR023-Bragg July 18, 2007 18:24 Char Count= 0

In memory of Wheaton, who always wanted to

write an accounting book and sail around the world

(not necessarily in that order).

v

JWPR023-Bragg-FM JWPR023-Bragg July 18, 2007 18:24 Char Count= 0

vi

JWPR023-Bragg-FM JWPR023-Bragg July 18, 2007 18:24 Char Count= 0

Contents

Preface xiii

Acknowledgments xv

About the Author xvii

About the Web Site xix

Chapter 1 Accounting Manuals 1

1.1 Introduction 1

1.2 General Accounting Manual 2

1.3 Corporate Policies Manual 3

1.4 Accounting Procedures 4

1.5 Purchasing Card Manual 5

1.6 Accounting Controls Manual 5

1.7 Year-End Manual 5

1.8 Budgeting Manual 5

1.9 Property Accounting Manual 6

1.10 Forms Manual 6

1.11 Document Management Manual 6

1.12 User Manual 7

1.13 Information Technology Manual 7

1.14 Human Resources Manual 8

1.15 ISO 9000 Quality Standards 8

1.16 In The Beginning 10

1.17 Procedures to Write and Change Procedures 13

Chapter 2 General Accounting Manual 16

2.1 Introduction 16

vii

JWPR023-Bragg-FM JWPR023-Bragg July 18, 2007 18:24 Char Count= 0

viii CONTENTS

2.2 Charts of Accounts 17

2.3 Accounting Term Definitions 23

2.4 Job Descriptions 31

2.5 Activities Calendar 36

2.6 Accounting Policies 36

2.7 Process Cycle Descriptions 40

2.8 Accounting Procedures 51

Chapter 3 Procedure Statements 52

3.1 Introduction 52

3.2 Writing Style 52

3.3 Writing Mechanics 56

3.4 Flowcharting for a Procedures Manual 58

3.5 Format of The Procedure 73

3.6 Work Steps for Constructing a Procedures Manual 77

3.7 Suggested List of Procedures 81

3.8 Other Uses for Procedures Manuals 86

Chapter 4 Maintaining and Distributing Accounting Manuals 88

4.1 Introduction 88

4.2 Maintaining Accounting Manuals 89

4.3 Responsibility for Maintenance of Manuals 93

4.4 Physical Construction of The Manual’s Binder 96

4.5 Creation and Storage of The Master Manual Copy 98

4.6 Creation and Maintenance of The Distribution Mailing List 100

4.7 Physical Distribution Process 100

4.8 Issuances to New Employees 102

4.9 Manual Retrieval 102

4.10 Benefits of Using Electronic Manuals 103

4.11 Disadvantages of Using Electronic Manuals 105

4.12 Basic Electronic Manual 106

JWPR023-Bragg-FM JWPR023-Bragg July 18, 2007 18:24 Char Count= 0

CONTENTS ix

4.13 Accounting Manual on an Intranet, Extranet, or the Internet 107

4.14 Electronic Manual with Embedded Hypertext 107

4.15 Electronic Manual with Advanced Indexing Features 110

4.16 Electronic Manual with Built-in Help Information 111

4.17 Electronic Manual with Built-in Tutorials 114

4.18 Writing Tips for Electronic Manuals 114

4.19 Example of Comprehensive Electronic Manual Features 116

4.20 Using the PDF Format for Electronic Files 116

4.21 Maintaining an Electronic Manual 118

Chapter 5 Corporate Policies Manual 120

5.1 Introduction 120

Chapter 6 Accounting Procedures 147

6.1 Introduction 147

Chapter 7 Purchasing Card Manual 307

7.1 Introduction 307

Chapter 8 Accounting Controls Manual 324

8.1 Introduction 324

8.2 Basic Order Entry Controls 325

8.3 Computerized Order Entry Controls 325

8.4 Electronic Order Entry Controls 326

8.5 Basic Credit Granting Controls 326

8.6 Computerized Credit Granting Controls 327

8.7 Basic Purchasing Controls 328

8.8 Basic Inventory Procurement Controls 329

8.9 Computerized Purchasing Controls 330

8.10 Procurement Card Controls 331

8.11 Goods in Transit Controls 332

8.12 Manual Receiving Controls 332

8.13 Computerised Receiving System Controls 333

JWPR023-Bragg-FM JWPR023-Bragg July 18, 2007 18:24 Char Count= 0

x CONTENTS

8.14 Receiving—Evaluated Receipts Controls 333

8.15 Manual Accounts Payable Controls 334

8.16 Computerized Accounts Payable Controls 335

8.17 Manual Cash Disbursement Controls 336

8.18 Computerized Cash Disbursement Controls 337

8.19 Electronic Payment Controls 337

8.20 Basic Inventory Storage/Movement Controls 338

8.21 Basic Perpetual Inventory Tracking Controls 339

8.22 Computerized Perpetual Inventory Tracking Controls 339

8.23 Inventory Bar Code Scanning Controls 340

8.24 Inventory Zone Putaway and Picking Controls 340

8.25 Inventory Pick-to-Light Controls 341

8.26 Inventory Cross-Docking Controls 341

8.27 Inventory Valuation Controls 341

8.28 Obsolete Inventory Controls 342

8.29 Manufacturing Resources Planning Controls 343

8.30 Just-in-Time Manufacturing Controls 344

8.31 Basic Shipping Controls 344

8.32 Drop Shipping Controls 345

8.33 Shippings—Evaluated Receipts Controls 345

8.34 Basic Billing System Controls 346

8.35 Computerized Billing System Controls 347

8.36 Advanced Billing System Controls 347

8.37 Credit Memo Controls 348

8.38 Basic Cash Receipt Controls 349

8.39 Basic Check Handling Controls 350

8.40 Computerized Check Handling Controls 351

8.41 Credit Card Receipt Controls 351

8.42 Lockbox Receipt Controls 351

8.43 Petty Cash Controls 352

JWPR023-Bragg-FM JWPR023-Bragg July 18, 2007 18:24 Char Count= 0

CONTENTS xi

8.44 Investment Controls 352

8.45 Basic Payroll System Controls 353

8.46 Computerized Timekeeping Controls 355

8.47 Computerized Payroll System Controls 356

8.48 Payroll Self-Service Controls 356

8.49 Cash Payroll Payment Controls 357

8.50 Electronic Payroll Payment Controls 357

8.51 Electronic Payroll Remittance Controls 358

8.52 Outsourced Payroll Controls 358

8.53 Fixed Asset Controls 358

Chapter 9 Period-End Manual 361

9.1 Introduction 361

9.2 Period-End Manual 361

9.3 Closing Procedure by Position 369

9.4 Soft Close 370

9.5 Year-End Close 376

9.6 New Year Startup 386

Chapter 10 Budget Manual 389

10.1 Introduction 389

10.2 System of Interlocking Budgets 389

10.3 Sample Budget 397

10.4 Flex Budget 413

10.5 Budgeting Process 414

10.6 Budgetary Control Systems 420

Chapter 11 Property Accounting Manual 422

11.1 Introduction 420

11.2 Project Cost Report 423

11.3 Record Keeping for Land Projects 423

11.4 Record Keeping for Land Improvement Projects 424

JWPR023-Bragg-FM JWPR023-Bragg July 18, 2007 18:24 Char Count= 0

xii CONTENTS

11.5 Record Keeping for Building Projects 424

11.6 Record Keeping for Factory Equipment Projects 425

11.7 Record Keeping for Office Equipment Projects 425

11.8 Record Keeping for Vehicles 426

11.9 Record Keeping for Leasehold Improvements 426

11.10 Record Keeping for Leases 427

11.11 Sample Property Accounting Manual 427

Chapter 12 Forms Manual 463

12.1 Introduction 463

12.2 Identify Needed Forms 463

12.3 Rules for Form Creation 465

12.4 Creating the Forms Manual 469

12.5 Electronic Forms 474

Chapter 13 Document Management Manual 475

13.1 Introduction 475

Chapter 14 User Manual 493

14.1 Introduction 493

14.2 Starting the Manual 494

14.3 Outlining and Updating the User Manual 495

14.4 Sample User Manual 495

Index 513

JWPR023-Bragg-FM JWPR023-Bragg July 18, 2007 18:24 Char Count= 0

Preface

Lack of adequate documentation is one of the largest pitfalls facing any accounting system.

One of four excuses is usually given: (1) nobody reads it, (2) the hands-on approach in

which each person teaches another is a better method, (3) written policies and procedures

are too confining, and (4) nobody has the time to write documentation. In a constantly

changing accounting world, none of these excuses can stand very long.

If an accounting staff and company executives are to be fully informed, this flood of

material must be read and, when necessary, related to the accounting operations at your

company. The dissemination of information on this scale cannot be handled orally or with

periodic meetings and brief memos to the staff involved. Thus, there is a need for clear,

consistent documentation to describe the accounting system being used, the principles

involved, the policies that management wishes enforced, and the procedures describing

what is to be done and how it is to be performed on a daily basis.

This book covers the development, implementation, and maintenance of 13 different

accounting manuals. Two of these are mandatory: the general accounting manual that

describes account coding schemes and how to code accounting transactions, and the

policy/procedure statement system that provides full information to anyone needing to

know a company’s accounting policies and the procedures to maintain them.

The other 11 manuals are optional, but as you read about them you will find that

they supplement and complement the primary accounting documentation; they are the

lubricant of the accounting system, and as such are useful for increasing the efficiency of

operations. If none of the following manuals are developed, certain portions of each will

appear in the basic manuals but in less depth. They are as follows:

1. Corporate policies manual. Contains nearly 250 policies used to govern all

functional areas of the accounting department.

2. Purchasing card manual. Describes all policies and procedures needed to oper￾ate an effective purchasing card program.

3. Accounting controls manual. Contains nearly 400 controls that can be used

to ensure that accounting transactions are completed with a minimal number of

exceptions, and that the probability of fraud is reduced.

4. Period-end manual. Describes the actions, reports, and schedules to be com￾pleted in sufficient detail to assure that the period-end closing is accurate, consis￾tent, usable, and timely.

5. Budgeting manual. Describes the specific steps to be followed to create the

annual budget, as well as task responsibilities by position.

6. Property accounting manual. Shows the forms that should be filled in and stored

in order to maintain a proper database of all corporate fixed assets, describing when

items were purchased or constructed, where they are located, and how they were

disposed of.

xiii

JWPR023-Bragg-FM JWPR023-Bragg July 18, 2007 18:24 Char Count= 0

xiv PREFACE

7. Forms manual. Describes every form in detail—its use, limitations, and how to

complete it.

8. Document management manual. Describes how to index, store, and dispose of

information related to the accounting function.

9. User manual. Provides information to non-accountant employees who are in￾volved in initiating or adding to an accounting document. This manual provides a

list of employees by function, a condensed chart of accounts, and instructions for

completing specific forms that are later used by the accounting department, such

as the employee expense report.

10. Information technology manual. A condensation of portions of the technical

computer processing instructions that accountants must handle, which can extend

to basic operating procedures for the information technology staff.

11. Human resources manual. Contains a list of all policies related to human re￾sources activities, as well as specific procedures required to perform operations

within the human resources department.

This book gives the reader a wide variety of real-life examples for constructing all of

the manuals just noted, as well as pertinent advice on how to write clearly, construct

easy-to-use manuals, and issue both paper-based and electronic manuals. It should be the

one-stop solution for anyone constructing accounting manuals.

September 2007

Centennial, Colorado