Establishing An Accounting System
How To Create An Accurate and Reliable Accounting System
Many startup businesses create their accounting system haphazardly. Only the obvious details and policies are created. It is often thought of as a part of the business that creates overhead and doesn’t contribute to the company’s profitability. Many small businesses get by with the least amount of effort. As a result, there are significant holes in their reporting and documentation and it ends up providing misleading information to management and creates unintentional errors in tax returns, leading to erroneous decisions.
Saved over $1 million in costly managerial mistakes through the development of a detailed accounting system of procedures and policies
During the first year of business, my business was quickly increasing the number of transactions that needed to be properly documented. Each time we placed a trainer on an engagement with a customer, there were numerous details to track. We first had to document the contractual agreement. Each agreement would have travel expenses, a rate of pay, and payment terms as significant components for accounting. We followed the details through a series of action steps that needed to be taken upon the execution of a contract. This became a workflow system that was followed by employees to process a new engagement. The accounting of each step was integrated into the actions. Each step had a form that captured information and a policy was implemented that all information must be completed before the deal could progress to the next step. Some steps were completed simultaneously, so each deal was also assigned a tracking number. High standards were set for source documentation and what went into the chart of accounts. The current general ledger and general journals were carefully monitored for errors. Financial statements were carefully reviewed for errors in underlying transactions. This became a cycle for continual system improvement. As a result, a significant change in the market was identified and a decision was made correctly that could have cost the company over one million dollars in losses if inaccurate reporting had obscured the problem.