CHAPTER 7: ACCOUNTING, RECORDS, AND ASSOCIATED REGULATIONS
7.1 Introduction
The code of ethics for financial officers contains a provision that calls for full, fair, accurate, and understandable disclosure in the periodic reports that a corporation is required to file. There are many regulations that hold financial officers liable for accurate financial reporting. Noncompliance can result in significant fines, penalties, and jail time. It is critical for companies to have a clear policy on their code of ethics, which each employee should sign, preferably every year. Sarbanes-Oxley Section 404 details requirements that – even for privately-held organizations not legally bound to comply – should be used as guidelines to ensure that all financial information is timely, accurate, and properly documented. In support of clear and accurate financial reporting, there are basic accounting concepts and account reconciliation processes that all AR professionals need to fully understand. Comprehension is especially important for billing and AR personnel, who are responsible for recording revenue. Revenue can be recorded when sales happen (as the invoice is issued or cash is deposited) or accrued (forecasted) to the period in which it belongs, based on your country’s financial reporting standards (e.g., GAAP, IFRS).
7.2 Accounting Definitions
Accruals: Are typically done via a journal entry at the end of a reporting period, based on an event such as a sale, shipment, or billing, in order to record expected income. In accrual-based accounting, the revenue/income should be recognized in the accounting period in which the income was earned, even if the monies have not been received. The expected income is usually booked as a debit to an AR holding account. When the monies have been received, the AR holding is cleared and a debit is entered into the cash account. Debits and credits: In accounting terminology, the terms debit and credit are used to describe increases and decreases to accounts. Once a debit occurs, there must be a corresponding credit. Every accounting record has two entries (a debit and a credit that must zero balance), referred to as double-entry accounting. Chart of accounts: A chart of accounts is a list of the general ledger accounts used by an organization. The list can be numerical, alphabetic, or alpha-numeric. Each ledger account is unique and is typically arranged in the order of the customary appearance of accounts in the financial statements. Accounts have a unique code that identifies the account as an asset, liability, equity, income, or expense account. Further breakdowns identify, for example, departments within a company and what the account is for.
Trial balance: This is a list of all active general ledger accounts with debit or credit balances at a specific time. (If the totals of debits and credits do not match, it indicates an error).
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THE ACCOUNTS RECEIVABLE SPECIALIST CERTIFICATION PROGRAM E-TEXTBOOK
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