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This chapter* provides an overview of how the payroll process typically functions, using a payroll supplier, an in-house payroll process assisted by computer systems, or an in-house system that is entirely processed by hand. These descriptions also include flowcharts of each process and coverage of the exact controls that are most useful for each situation. Additionally, the chapter covers the types of documents used to set up a new employee in the payroll system, how to organize this information into a personnel folder, and how to process changes to employee information through the payroll system. As noted in the summary, the information in this chapter is supplemented with more detailed descriptions of specific payroll issues in later chapters.
Accounting Best Practices Third Edition Accounting Best Practices Third Edition Steven M Bragg John Wiley & Sons, Inc This book is printed on acid-free paper Copyright © 2004 by John Wiley & Sons, Inc., Hoboken, New Jersey All rights reserved 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 978-750-4470, 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, e-mail: permcoordinator@wiley.com Limit 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 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 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 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) Accounting I Title HF5635.B818 2003 657—dc21 Printed in the United States of America 10 2003006629 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 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 economics 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 vi Contents Preface viii Chapter Introduction Chapter How to Use Best Practices Chapter Accounts Payable Best Practices 17 Chapter Billing Best Practices 66 Chapter Budgeting Best Practices 87 Chapter Cash Management Best Practices 110 Chapter Collections Best Practices 128 Chapter Commissions Best Practices 154 Chapter 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 product may be updated with annual supplements or with future editions Please call 1-877-762-2974 or e-mail us at subscriber@wiley.com 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 purchased this product directly from John Wiley & Sons, Inc., we have already recorded your subscription for this update service vii 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 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 management 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 consulting services to other companies Accordingly, it contains a blend of best practices from a wide variety of accounting environments, ranging from very small partnerships 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 Practices contains 60 new best practices These are concentrated in the areas of internal auditing, accounts payable, finance, and payroll 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 second 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 function Though this area sometimes falls outside of the accounting function by reporting directly to the auditing committee of the board of directors, it more viii 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 management 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 edition 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 particularly 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 brasto@aol.com Thank you! STEVEN M BRAGG Centennial, Colorado March 2003 ... Chapter How to Use Best Practices Chapter Accounts Payable Best Practices 17 Chapter Billing Best Practices 66 Chapter Budgeting Best Practices 87 Chapter Cash Management Best Practices 110 Chapter... Chapter Collections Best Practices 128 Chapter Commissions Best Practices 154 Chapter Costing Best Practices 167 Chapter 10 Filing Best Practices 184 Chapter 11 Finance Best Practices 206 Chapter... 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