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Financial Statements Best Practices
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detailed descriptions of what they do, and flowchart all activities. Only after these
steps are completed can one see the bottlenecks in the process that must be elimi-
nated. For example, an employee may be using a painfully slow allocation method
for spreading occupancy costs, which can be easily altered by switching to a sim-
pler method—but a controller will never know this without a complete documen-
tation of exactly how the current allocation calculation is made. The documenta-
tion process can be a slow one, especially for a multidivision company including
many employees and locations in the process. Nonetheless, it is the only way to
gain a better understanding of the process, which leads to better decisions regard-
ing how other best practices can be inserted to ensure better results.
It is possible to short-circuit some of the documentation process. The best way
is to determine which people in the process are causing the obvious bottlenecks,
since the work seems to pile up at their desks. Their work should be documented
and acted on first, while the efforts of others, whose work products are clearly com-
ing in on time, can wait until any changes alter the process enough to make them
the cause of the new bottlenecks. By using this variation on the documentation
process, it is possible to more rapidly institute changes to the overall process.
Cost: Installation time:

12–18 RESTRICT THE USE OF JOURNAL ENTRIES

Journal entries can be the bane of the general ledger accountant who is desperately
trying to issue accurate financial statements. The reason is that in the midst of
cleaning up the general ledger in preparation for the issuance of financial state-
ments, this person will sometimes find that a journal entry has miraculously
appeared in the ledger, requiring a hurried investigation to determine who made the
entry, why it was made, and whether the entry was already duplicated by the gen-
eral ledger accountant. After this added work, there is always the chance that even
more entries will be made prior to the closing of the books for the reporting period.
A particularly irritating problem is when a journal entry is made between the time
when the financial statements are issued and the accounting period is closed in the
computer system, since the change appears in the beginning balance for the next
month, but does not show up in the financial statements! This can be an exceed-
ingly difficult item to trace. Thus, allowing multiple people to create journal entries
can lead to significant delays during the production of financial statements.
A much simpler approach is to restrict the task of making journal entries to a
single person, the general ledger accountant. Even the controller should not be
allowed to create journal entries. By using this approach, there is a single easily
controlled point of entry into the general ledger, ensuring that the information
entering the ledger has been verified in advance. The inevitable result will be
fewer problems with the production of financial statements.