Accounting procedure definition
/What is an Accounting Procedure?
An accounting procedure is a standardized process that is used to perform a function within the accounting department. It itemizes each step in the process, noting how it is to be completed. Accounting procedures are essential for the consistent recordation of business transactions, as well as to ensure that processes are conducted in a manner that complies with the applicable accounting framework (such as GAAP or IFRS).
Examples of Accounting Procedures
An accounting department could have dozens of accounting procedures, while an accounting department in a larger business could have several hundred of them. Examples of accounting procedures are:
Issue billings to customers
Pay invoices from suppliers
Calculate payroll for employees
Calculate depreciation for fixed assets
Derecognize fixed assets
Conduct a bank reconciliation
Advantages of Accounting Procedures
An accounting procedure is designed to complete a function efficiently, while incorporating sufficient controls to mitigate the risk of loss. A procedure can also be developed as a training tool for employees, who can peruse the document to gain an understanding of a new job.
Disadvantages of Accounting Procedures
Accounting procedures can be cumbersome and a waste of time when they are developed for processes that are only encountered rarely and have little monetary value. In these situations, it is not cost-effective to maintain the procedures.