Accounting Policies and Procedures are necessary for any professional, business or organisation in order to manage, record and monitor their respective finances. They refer to the multiple standards and criteria utilised to create and arrange financial statements, as well as the processes utilised in the aforementioned creation and arrangement of a professional accounting course.
Accounting policies and procedures are indispensable for making sure that any accounting that takes place is done both correctly and according to an organisation’s financial structure. This also ensures that all accounting observes professional accounting standards and ideologies, such as GAAP (generally accepted accounting principles). This would guarantee that any financial statements created follow a uniform system for accounting that other organisations would also utilise, thus providing a broadly standardised format for accounting.
Accounting policies and procedures are also vital for allowing both organisations and professionals to accurately calculate revenue, for the purpose of identifying how much money is being gained or lost by both the organisation and its investors. As a result of this revenue recognition, the organisation is then able to analyse how to suitably manage and measure any money they are making. As well as revenue recognition, accounting policies also enable organisations and professionals to identify any expenses they may have made for different fields, such as research and development.
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One such example of an accounting policy would be the first in, first out model, more commonly referred to as FIFO. This term is used to describe the way in which items acquired first become the first items to be sold. FIFO is one such accounting policy that one may implement and utilise in order to manage their inventory. Using accounting policies such as FIFO may allow for organisations and professionals to manipulate and better control their income in accordance with the time period in which those items in the inventory were sold, as well as provide a great utility for the management and pricing of inventories.
Typically, organisations may utilise one of the two methods of accounting policies that are introduced in our professional accounting course; they will either take a conservative approach, where financial performance and estimates are approximated to be lower than they may actually be, in order to carefully manage any risks taken in investments while considering any potential worst-case scenarios. On the contrary, aggressive accounting policies will involve the approximation of financial performance and estimates being higher than they may end up being. This allows the organisation’s performance to be presented in a more flattering manner to investors and potentially masking any losses that may have occurred.
The term ‘accounting procedures’ on its own may also be used to describe the exact methods by which one can create or manage a financial statement. While accounting policies broadly cover the guidelines and criteria necessary for the creation of these statements, accounting procedures can be considered as the steps by which they are created. One prevalent example of an accounting procedure is that of the accounting cycle, which describes how financial statements are created within a specific series of steps. After the identification and analysis of all data pertaining to any transactions that have taken place, the data is then recorded within a chronological journal of transactions and then submitted to a general ledger, in order to clarify all accounting that has taken place so far. Following this, a trial balance, which consists of total costs versus any funds available, is calculated, and is then used alongside transaction data to create the overall financial statement, to be either retained for historical purposes or provided to managers and shareholders alike.
In regards to which accounting policies and procedures one should utilise and implement in their respective business, there are a number of learning courses which can be taken in order to gain a better understanding of the topic. The course mentioned above involves the teaching of aspects such as the accounting manual, which is typically used to cover all accounting policies and procedures within a business or organisation. Following participation in such a course, one would not only gain a greater understanding of how professional accounting policies and procedures work as a whole, but would also be able to apply what has been learned from the course to make informed decisions about what method or approach one should employ when considering which accounting policies to use.
To summarise, accounting policies and procedures cover all rules, methods and ideas used by an organisation for the preparation and creation of financial statements. They are of the utmost importance to an organisation’s overall stability and success, as they provide an insight into the organisation’s financial projections, as well as the handling of inventories and policies in regards to how they operate, and ultimately provide an idea of how much an organisation may be worth financially, as well as how much appreciation or depreciation is occurring.