Small business owners usually spend copious amounts of time planning business functions and processes. Accounting is an important business function in small business. Business owners use accounting to record and report various pieces of their company’s financial information. Accounting procedures represent the specific guidelines business owners and employees follow when preparing accounting information. Internal controls are another important small business function. Internal controls create safeguards to protect the company’s business or financial information and operational performance.
Accounting workflow is a procedure that dictates how information or documents will flow through a company’s business operations. This procedure may not be as important for business owners completing all accounting functions. However, larger business organizations use accounting procedures to ensure employees handle all financial information in a consistent manner. Accounting workflow provides guidelines for gathering internal and external documents, entering information into the company’s accounting ledger and filing it according to standard operating procedures.
Fixed asset accounting procedures are important processes in small business accounting. Fixed assets represent facilities, equipment, vehicles or other major items owned by the company. These assets are commonly used to create the goods and services sold to consumers. Business owners create accounting procedures relating to the acquisition and depreciation of fixed assets. Most small businesses record fixed assets at their historical value and the company’s general ledger. As the asset is used in business operations, a depreciation amount is recorded as an expense each month to represent the amount of asset use.
Petty cash procedures represent the use of business cash for minor purchases. Small business owners often create procedures and policies for petty cash to curb out-of-control spending. Petty cash procedures include setting a fixed petty cash amount for each month, requiring approval prior to spending cash and reconciling the petty cash at least once a month. Business owners use these procedures to keep an accurate record of petty cash expenditures.
Internal controls provide specific guidelines to prohibit certain employee behavior in the company. Fraud prevention is a leading reason for internal controls. Business owners use internal controls to ensure one employee does not complete too many accounting functions. Employees who complete multiple accounting functions (such as posting deposits and reconciling bank statements) many have higher opportunities for manipulating information, engaging in fraud or embezzling money from the company.
Verify Accounting Data
Business owners can use internal controls to verify their company’s accounting data. Small businesses with several accounting employees use a review process to ensure all information is recorded accurately. Business owners, controllers or accounting managers may be responsible for reviewing employee accounting work in a timely manner to verify its accuracy and validity.
Internal controls can also help business owners measure and review operational performance. Internal controls require employees to follow all standard operating procedures. Business owners can also measure employees' performance based on standard internal control guidelines. Internal controls impose safety standards to ensure employees are not injured when completing business functions.
- "Accounting"; Charles T. Horngren, Walter T. Harrison, Jr.; 2007