Accounting Best Practices, 3rd Edition

406 Pages·2004·2.49 MB·English

by  Steven M. Bragg

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Accounting
Best Practices
Third Edition
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Accounting
Best Practices
Third Edition
Steven M. Bragg
John Wiley & Sons, Inc.
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This book is printed on acid-free paper.
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Library of Congress Cataloging-in-Publication Data:
Bragg,Steven M.
Accounting best practices / Steven M. Bragg.—3rd ed.
p. cm.
Includes index.
ISBN 0-471-44428-6 (CLOTH)
1. Accounting. I. Title.
HF5635.B818 2003
657—dc21 2003006629
Printed in the United States of America
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Many capabilities originate through the direct assistance
of parents in one’s childhood. 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 with
mandatory definition reviews from the dictionary.
I also picked up a few especially choice words whenever my
dad banged his thumb with a hammer. Mom and Dad,
thank you once again.
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About the Author
Steven Bragg,CPA,CMA,CIA,CPIM,has been the chief financial officer or
controller of four companies, as well as a consulting manager at Ernst & Young
and auditor at Deloitte & Touche. He received a master’s degree in finance from
Bentley 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 the
10,000-member Colorado Mountain Club, and is an avid alpine skier, mountain
biker,and rescue diver.
Mr. Bragg resides in Centennial, Colorado. He is the author of Advanced
Accounting Systems(Institute of Internal Auditors,Inc.,1997),and the following
books from John Wiley & Sons,Inc.:
Accounting and Finance for Your Small Business
Accounting Best Practices
Accounting Reference Desktop
Business Ratios and Formulas
The Controller’s Function
Controllership
Cost Accounting
Design and Maintenance of Accounting Manuals
Essentials of Payroll
Financial Analysis
Government Accounting Best Practices
Just-in-Time Accounting
Managing Explosive Corporate Growth
The New CFO Financial Leadership Manual
Outsourcing
Sales and Operations for Your Small Business
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Contents
Preface viii
Chapter 1 Introduction 1
Chapter 2 How to Use Best Practices 4
Chapter 3 Accounts Payable Best Practices 17
Chapter 4 Billing Best Practices 66
Chapter 5 Budgeting Best Practices 87
Chapter 6 Cash Management Best Practices 110
Chapter 7 Collections Best Practices 128
Chapter 8 Commissions Best Practices 154
Chapter 9 Costing Best Practices 167
Chapter 10 Filing Best Practices 184
Chapter 11 Finance Best Practices 206
Chapter 12 Financial Statements Best Practices 225
Chapter 13 General Best Practices 253
Chapter 14 General Ledger Best Practices 290
Chapter 15 Internal Auditing Best Practices 308
Chapter 16 Inventory Best Practices 325
Chapter 17 Payroll Best Practices 346
Appendix A Summary of Best Practices 376
Index 389
IMPORTANT NOTE:
Because of the rapidly changing nature of information in this field,this prod-
uct may be updated with annual supplements or with future editions. Please
call 1-877-762-2974 or e-mail us at [email protected] to receive
any current update at no additional charge.We will send on approval any
future supplements or new editions when they become available. If you pur-
chased this product directly from John Wiley & Sons,Inc.,we have already
recorded your subscription for this update service.
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Preface
The 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 to
do so at the lowest possible cost. Consequently, the accounting staff is called
upon to process transactions, write reports, create new processes or investigate
old ones—while doing so as an ever-shrinking proportion of total expenses.
This cost-based environment is a very difficult one for most accountants,for
their training is primarily in accounting rules and regulations,rather than in how
to run a very specialized department in a cost-effective manner. They find a few
ideas for improvements from attending seminars or perusing accounting or man-
agement magazines,but there is no centralized source of information for them to
consult, which itemizes a wide array of possible improvements. Hence the need
for the third edition of Accounting Best Practices.
This book is compiled from the author’s lengthy experience in setting up and
operating a number of accounting departments,as well as by providing consult-
ing services to other companies. Accordingly,it contains a blend of best practices
from a wide variety of accounting environments, ranging from very small part-
nerships to multibillion-dollar corporations. This means that not all of the best
practices described within these pages will be useful in every situation—some
are designed to provide quick and inexpensive, incremental improvements to an
operation that can be installed in a day, while others are groundbreaking events
that require six-figure investments (or more) and months of installation time.
Some will only work for companies of a certain size,and should be discarded as
more expensive and comprehensive accounting systems are installed—it all depends
on the situation. Consequently,each chapter includes a table that notes the ease,
duration, and cost of implementation for every best practice within it. The best
practices are also noted in summary form in Appendix A.
This third edition of Best Practicescontains 60 new best practices. These are
concentrated in the areas of internal auditing,accounts payable,finance,and pay-
roll. Some of the best practices involve solutions that have been posted on various
Internet 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 have
closed down, requiring the author to remove three best practices that had been
listed in that book. The area of application service providers has been especially
hard hit,with about two-thirds of the providers listed in the second edition having
shut their doors in the past two years.
Chapter 15 is new,containing 19 best practices for the internal auditing func-
tion. Though this area sometimes falls outside of the accounting function by
reporting directly to the auditing committee of the board of directors, it more
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Preface ix
commonly reports to the chief financial officer, and therefore a discussion of
improvements to it appears relevant for this book.
Accounts payable remains the area with the largest concentration of best
practices,with the total now rising to 40 just in this area. A number of risk man-
agement and investor management best practices have also been added to the
finance chapter, as well as a smattering of best practices to a half-dozen other
chapters. The result is 292 best practices to assist the reader in creating a more
efficient and effective accounting department.
Given the large number of best practices in this book,it would have become
quite 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, itemizing
by subcategory the best practices located within it. For example, the accounts
payable chapter sorts best practices into the categories of approvals,credit cards,
documents, expense reports, management, payments, purchasing, and suppliers.
A reference number is assigned to each best practice in the table,which one can
then use to find the best practice within the chapter. The tables also graphically
describe the cost and duration of implementation required for each item,which is
repeated throughout the text that follows the descriptions of each best practice.
For additional ease of indexing,these tables are collected into Appendix A.
Finally, a selection of best practices have an “Author’s Choice” icon posted
next to them. These best practices are those the author has found to be particu-
larly effective in improving accounting operations.
If you have any comments about this book, or would like to see additional
chapters added to future editions, please contact the author at [email protected].
Thank you!
STEVENM. BRAGG
Centennial,Colorado
March 2003
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Acknowledgments
A special note of thanks to the managing editor on this project,John DeRemigis,
who first conceived the idea of a best practices book.
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