What Are Accounting Policies?
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Accounting policies are the specific principles and procedures implemented by a company's management team that are used to prepare its financial statements. These include any accounting methods, measurement systems, and procedures for presenting disclosures. Accounting policies differ from accounting principles in that the principles are the accounting rules and the policies are a company's way of adhering to those rules.
Key Takeaways
- Accounting policies are procedures that a company uses to prepare financial statements. Unlike accounting principles, which are rules, accounting policies are the standards for following those rules.
- Accounting policies may be used to manipulate earnings legally.
- A company's choice in accounting policies will indicate whether management is aggressive or conservative in reporting its earnings.
- Accounting policies still need to adhere to generally accepted accounting principles (GAAP).
How Accounting Policies Are Used
Accounting policies are a set of standards that govern how a company prepares its financial statements. These policies are used to deal specifically with complicated accounting practices such as depreciation methods, recognition of goodwill, preparation of research and development (R&D) costs, inventory valuation, and the consolidation of financial accounts. These policies may differ from company to company, but all accounting policies are required to conform to generally accepted accounting principles (GAAP) and/or international financial reporting standards (IFRS).
Accounting principles can be thought of as a framework in which a company is expected to operate. However, the framework is somewhat flexible, and a company's management team can choose specific accounting policies that are advantageous to the financial reporting of the company. Because accounting principles are lenient at times, the specific policies of a company are very important.
Looking into a company's accounting policies can signal whether management is conservative or aggressive when reporting earnings. This should be taken into account by investors when reviewing earnings reports to assess the quality of earnings. Also, external auditors who are hired to review a company's financial statements should review the company's policies to ensure they conform to GAAP.
Important
Company management can select accounting policies that are advantageous to their own financial reporting, such as selecting a particular inventory valuation method.
Example of an Accounting Policy
Accounting policies can be used to legally manipulate earnings. For example, companies are allowed to value inventory using the average cost, first in first out (FIFO), or last in first out (LIFO) methods of accounting. Under the average cost method, when a company sells a product, the weighted average cost of all inventory produced or acquired in the accounting period is used to determine the cost of goods sold (COGS).
Under the FIFO inventory cost method, when a company sells a product, the cost of the inventory produced or acquired first is considered to be sold. Under the LIFO method, when a product is sold, the cost of the inventory produced last is considered to be sold. In periods of rising inventory prices, a company can use these accounting policies to increase or decrease its earnings.
For example, a company in the manufacturing industry buys inventory at $10 per unit for the first half of the month and $12 per unit for the second half of the month. The company ends up purchasing a total of 10 units at $10 and 10 units at $12 and sells a total of 15 units for the entire month.
If the company uses FIFO, its cost of goods sold is: (10 x $10) + (5 x $12) = $160. If it uses average cost, its cost of goods sold is: (15 x $11) = $165. If it uses LIFO, its cost of goods sold is: (10 x $12) + (5 x $10) = $170. It is therefore advantageous to use the FIFO method in periods of rising prices in order to minimize the cost of goods sold and increase earnings.
You will come across a number of businesses that require documenting the account policies and steps to maintain an internal control. Whereas there are, some who want to maintain the documents of their various Procedure Manual Template , internal procedures and implements the best practices as well. With the help of accounting manual template, an organization can employ a comprehensive and effective set of accounting practices to be efficient and accurate.
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With the help of it, you can maintain an updated and documented version to produce useful financial statements and management reports. In this Policy Manual Templateyou will find policies, procedures, and internal controls necessary to develop documentation. In these templates, you will find various checklists, forms, and spreadsheets to develop a comprehensive accounting policies and procedure manual for your business.
Nonprofit Accounting Manual Template
Non-Profit organization or various charitable organizations find it easy to manage their non- profit policy and procedures manual with the use of this template. This type of template covers most of the critical elements with the use of tools and texts to integrate policies and procedures for management, accounting, employees, safety, and project management.
Small Business Accounting Manual Template
You can easily create your own small business accounting policies and procedures manual with the help of templates. In this format, you will come across contents such as revenue and cash receipts, payroll, assets and liabilities, financial reports, various internal reports of the small business and administration aspects to get everything on track.
Manufacturing Company Accounting Manual Template
Just like other businesses, a manufacturing company also uses a sequence of events known as accounting cycle to prepare various financial statements. The manufacturer brings on some specific requirements to use an accrual method to find a value inventory. In this template, you will find specific contents to help you prepare an accounting system with ease.
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Use and Purpose of Accounting Manual Template
There are a number of businesses both and big and small who require a proper documented accounting policies and procedures, with notable internal control. Another set of people wants to keep the documents of their internal procedures and implement some best practices in the future. For them, an accounting manual template is just perfect to begin with and in the correct order.
Why Do I Need an Accounting Manual Template?
It is not possible to cover Instruction Manual Template various accounting system and procedure without knowing the basic format. It is not even possible to know the comprehensive accounting policies and procedures of a particular company as it keeps on varying. Therefore, to ensure efficiency and accuracy it is better to begin with an accounting manual template.
What Are the Contents of an Accounting manual Template?
List Of Accounting Policies
The accounting manual template generally embodies a content checklist that covers Office Manual Template elements like revenue, policies, and procedures, credits and accounts, payroll, assets and liabilities, financial reporting, purchases made, financial internal control, flowcharts of the accounting system and lot more. These spreadsheets help to develop comprehensive accounting maps that are easy to download and edit.
How Do You Create an Accounting Manual Template?
In order to prepare an accounting manual template, Training Manual Template you need to download a version on which you want to work. It may be in PDF or Excel format and comes with editable features. You can easily create daily, monthly, weekly or monthly accounting manuals. You simply need to edit the required field and put your own figures and data.
The various types of accounting manual templates available with us and are available in formats such as PDF, Word and Excel. They are all available in editable versions so that you can put relevant data as per your necessity. All the templates found here guarantees 99.9% success rate through their lower and upper versions.
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