Every company needs an accounting department to keep things running smoothly. This unit helps to ensure that the business is earning and able to properly finance its operations. However, it has additional functions, and knowing these functions is vital to understanding the role the accounting department plays in driving a successful business.
While there may be some variation in different companies, there are generally five main functions that the accounting department performs as part of its mandate. Because the company’s finances are at stake, it is important that the department operates with accuracy while fulfilling its tasks in a timely manner. An efficient accounting system helps to automate some of these duties while minimizing the risk for error, but the accounting department still needs to oversee all the processes and make adjustments where necessary.
Securing the Inflow of Money
The goal of every business is to make money, so the accounting department is there to ensure that payments are properly collected and accounted for. In business-to-business transactions, accounting issues billing invoices to the company’s clients, which tracks all the details of the sale. These invoices need to be submitted within a certain timeframe, as it can take a while for the client to process the payment. On the other hand, retail transactions may operate across many store locations. Most companies often utilize a point of sale or POS system for tracking so that they can verify the cash register with the sales log.
This inflow of money is referred to as accounts receivable, and the accounting department is responsible for making sure these payments are collected on time. Otherwise, delayed payments can negatively affect the company’s operations.
Controlling the Outflow of Money
There are many costs associated with running a business, and the company needs to be able to keep tabs on these expenses. From purchasing raw materials to paying for outsourced services, every cash outlay has to fit into the operating budget, or else the company will be operating at a loss.
The accounting department closely monitors the payments it releases and looks for ways to minimize its outflow. Apart from tracking accounts payable, good accounting software should have a vendor management system as this can enable the accounting department to easily identify the lowest prices and best payment terms to minimize company expenses.
Managing Company Payroll and Assets
Keeping employees properly compensated for their work helps to maintain productivity. In large organizations, this accounting function can require a lot of work as each employee’s attendance record, sales commissions, and tax computations all have to be taken into account in determining their salary. Companies can opt to do payroll on a monthly, bi-monthly, or even weekly basis.
Additionally, companies often acquire physical assets during the course of their operations. The purchase cost of production machinery, computers, and even furnishings like desks and chairs all count towards the value of company assets. However, these items get worn and break down over time so the accounting department has to keep track of its value depreciation. This also helps the business to identify when to replace these assets to ensure production efficiency.
Building Corporate Financial Data
Knowing how much a business is making versus the cost of its operations is important to its owners and stakeholders. This financial information is key for making informed decisions for matters of importance such as improving the company’s operations or whether it is performing well enough to look into expansion. Some markets also move at a fast pace, so it is important for the company to always know the details of its financial status.
The accounting department is responsible for producing this important data using financial statements, budget allocations, and even forecast reports. It is critical that this information is accurate and up to date as it can be risky for businesses to move based on speculation.
Businesses form part of a larger community, and there are usually regulations in place to make sure that companies meet certain standards. The accounting department is responsible for making sure that the company is compliant with these requirements as failure to do so can result in costly penalties.
The common perception that accounting departments focus on handling company money is correct, but they play a much bigger role in your company’s success. Accounting functions benefit the whole organization so investing in efficient and reliable accounting software is a must.
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