Best Practices in Financial and Management Accounting

1. Decide the method of accounting: There are two methods of accounting which can be
adopted which are cash and accrual method. In cash method of accounting the transactions
are recorded if there is any payment being made or received. This method is simple but
lacks long term clarity.
The second method of accounting is accrual method where the transactions are recorded
once the transaction is made. This is more complicated than cash accounting but provides a
clearer long-term picture. This method may also be deceiving as we can manipulate the
books. So, it is important that the method of accounting is chosen at first.
2. Monitoring of expenses and accurate maintenance of records: For small businesses
keeping a track of their expenses might be easy. But as the organisation grows it becomes
increasingly difficult to keep a track of the expenses. So there needs to be a system in place
and a proper framework for maintaining the records. Using software and storing
information like supplier name, invoice date, amount paid or owed helps in getting clear
idea of the expenses which leads to a clearer picture of the financials. This also helps in
minimising time in auditing process. It is also important to keep all the receipts, credit and
debit card statements, bills payable and receivable.
All the transactions must be stored in journals and ledgers or in dedicated software. The
accounts of different departments should be segregated so that the transactions could be
easily traced back to their origin. It is advised to keep records of cheque disbursements,
cash receipts, business check book, employee compensation record, etc and record
transactions daily to avoid any error.
3. Separating business finances and conducting monthly reviews: It is fruitful to keep
separate records for personal and business finances. This will help in getting a clearer
picture of the financial aspects of the business and provide a good measurement of the
future forecasts. It will also help in easing the process during tax filing or planning and
forecasting growth of the company. If the personal and business finances are mingled
together then it might result in liabilities which could not be foreseen. Hence it is always
better for organisations to keep separate records of business and personal finance.
A monthly review of the finance accounts will help in keeping in tune with the accounts
payable and receivable receipts. This will help in paying dues on time and avoiding any
unnecessary penalty. This will also help in proof reading of the accounts.
4. Limiting accounts receivable and creating consistent credit policy: Account receivables
can be tricky for an organisation. If the receivables are not followed up with customers on
time there might be delay in receiving payment. If there is an inconsistent credit policy then
these debts might have to be overwritten which end up being bad debts. So, it is important
to have a consistent credit policy like taking a portion upfront and accurately billing
customers. It is advisable to make accounting for accounts receivable on the day they are
realised.
5. Include automation wherever possible and backup financial records: Introducing
automation will help in reducing human error associated with accounting process. Also it
will help organisation in wasting time and human resource on mundane task like book
keeping for invoice processing or payroll processing.
Also backing up financial records either on cloud or on secondary devices is recommended.
This will help in retrieving data in case of disasters, theft or attack from ransomware.
These are some of the best practices that can be adopted in accounting for financial
management or material management.