What is, and how does an accounting department structure work?
To be successful and correctly manage anything, everything needs a bit of an organization and structure for who does what and when. It avoids repetition of tasks and misinformation that can lead to terrible financial reporting and further law penalties.
Which brought us to the question of how, and what was needed? As accounting, a job that requires a lot of precision, should not be taken lightly, something had to be done. Therefore, an accounting department structure saw the day. You’ll learn how it works and its significance in a company.
What is an accounting department?
An accounting department is the division in a company that deals with the entire aspect of accounting from financial statements preparations, accountant ledger maintenance, payroll to bill and customer payments, etc.
To simplify, they manage the global economic aspect of the business. Furthermore, not only does it focus on statutory requirement’s compliance, but is also extremely crucial at helping to track revenue and expenses of the company.
What is the structure of an accounting department?
No matter how small or big a company is, an accounting department will become necessary. And, as there are different types of accounting, requiring more than one staff member, it is no surprise why they had to get organized into a structure to facilitate its management. Here is a picture that represents the main roles included in an accounting department below:
- The Chief Operating Officer (CFO) is at the top of the department. He is the leader of the accounting team. He plans, manages, runs every financial activity of the company from investments, capital, to revenue and expenses. Furthermore, he reports directly to the owner of the business or the Chief Operating Officer (CEO) by offering strategic financial guidance for any changes needed and is in control of maintaining relationship with stakeholders and partnerships.
- The Financial Controller is responsible for the accounting and financial record of the company, making sure that all recorded data is accurate. Their position usually involves handling insurances and reporting. They oversee the general accounting, prepare financial statements, ensuring that they follow the GAAP principle if it is a public-trade company and that it’s all done on time. They even set up bank accounts, look out to see that payments are made and received from customers. In addition, they intervene when the CFO and the owner don’t have the time to or can no longer monitor bookkeeping.
- Treasury Manager: The role of the treasury manager is to review the funding needs, oversee the cash flow, investments, revenue and expenses of a company. Obviously, they aim to keep the company’s finance afloat to avoid risks, as known as bankruptcy or debts.
- Accounting manager: Their responsibility is to oversight the entire operations of the accounting department, deal with and report all the financial transactions and ensure legal requirements are met by the accounting employees. They suggest and impose correct methods, use of accounting policies.
- Accountant: They hold a vital position in the accounting department because they actually deal with overseeing all the financial data as they prepare accounts and tax returns, monitor the company’s expense and budgets. They audit and analyze financial performance to evade potential risks, reduce costs and increase the company’s profits.
What does the accounting department do?
Accounting department is important for any business because they are in charge of supervising such as recording and reporting the company’s cash flow, payments of goods and services. The department comprises 5 functions, which are:
- Accounts receivable (AR): It handles the money that comes into the company, known as cash receipts. It is an asset account on the balance sheet, which is the balance owed to a company for goods or services they have sent and have been received by the recipient, but not yet paid for. They ensure that the customer or client is aware of the amount due by sending them the invoice.
- Accounts payable (AP): As opposed to accounts receivable, it is the money the company owes to its creditors, suppliers, for products or services received within a given period. That being said, though it may hurt your pockets, it is the cashflow that goes out of the company, named cash disbursements. AP is represented as the accounts payable balance on the balance sheet, but could soon turn into and weigh in the current liabilities sections. It depicts company’s credit state as well. If the AP rises, then the company is crediting and not actually paying cash, but on the other hand, if it lowers, the company is in control of their expense and is dealing with their debts quicker than it is crediting.
For example, a company receives products or services from suppliers or vendors. The supplier and vendor will provide an invoice for the company and send it.
The AP department receives the invoice as a $1000 credit in the account payable section of the balance sheet and a $1000 debit for the goods and services, proceeding to income statement. This, in fact, adheres to the process of accrual accounting as the company has taken into account the expense, even though, no cash has been sent yet.
- Payroll: This function in accounting is the calculation, record and study of the employee’s payroll, earnings, gross wages, salaries, commissions, bonuses and more. It is the compensation a business is compelled to pay to their employee.
In this function, it is also possible for information in terms of work hours to be relayed by the human resources department to then be processed and analyzed.
Financial controls: verifies that everything like financial reports is running well and that the levels set and objectives proposed, regarding sales, earnings, surpluses, etc., are being met without any significant alterations.
- Financial reporting: is to disclose financial data through financial statements to stakeholders, to give them an incline into the financial state, position of the company. It is an essential part of accounting for companies that wish to, for example, expand and need investors to invest in their company. Investors or creditors will know if it is worth it or not according to your finances' stability.
Moreover, it is simply required by the law to confirm whether you are paying your taxes.
Budgeting: The accounting department ensures that no other department is overspending and that everyone is staying within budget by tracking the company’s expenses.
How to run an effective accounting department?
Of course, the health of a company depends on an organized and healthy accounting department. Therefore, if you want to run a positive company, here are some solutions you can apply.
Account reconciliation: It is important to be punctual with your account reconciliation. As it is a time-consuming process, you can use software tools to automate some of your tasks. As you constantly spend and receive throughout the year, this step is important because it helps keep track of your inflows and outflows and certifies that there are no mistakes and that both your credits and debits match. This is very useful to verify your company’s financial position.
Tax payments: seems obvious, but should be said. You must pay your taxes on time, or you might risk getting fines, audited. Trust us, an audit is never pleasant.
Research: it is very important to know whether your company is following the latest practices, rules and regulations.
Cut-off procedures: Applying set procedures gives your accounting department time to prepare for that period-ending, a.k.a. end of your financial reporting. It increases efficiency and rapidity.
Streamline reporting: So, everyone concerned in the department can see every data, transaction that there is to, for proper reporting. In turn, auditing would be much clearer.
Reorganize your department staff periodically: Company usually focus on expanding their company, gaining money, but forget the staff behind the entire expense and revenue handling. Don’t forget who is behind your financial success. In the same manner you look to update your company’s financial position, the same way, the accounting department should dispose of the tools and latest gadgets to accomplish their job. Check in with them regularly.
Hopefully, you will feel inspired to get an accounting department someday or use tips to help your accounting department successfully as it is very crucial for companies’ exchange of good and services, revenue and expenses.