Page 259 - Accounting Best Practices

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12–22 USE STANDARD JOURNAL Financial Statements Best Practices
ENTRY FORMS
The production of a typical set of financial statements requires the entry of a large
number of journal entries. These must be made for a variety of reasons that even the
best-run accounting department cannot avoid, such as cost allocations, accrued
expenses for which a supplier invoice has not yet arrived, or the shifting of an
expense to a different account than the one into which it was initially recorded.
Recording each one of these entries can take a considerable amount of time, for a
great deal of thought must go into which accounts are used, their account numbers,
the amounts of money to be recorded in each account, and whether there will be a
debit or credit entry. Consequently, the use of journal entries can take up a signifi-
cant amount of the total time required to produce financial statements.
One way to reduce the amount of time devoted to journal entries is to create
a standard set of journal entry forms. These are used for the recording of standard
journal entries where the amount of money to be recorded will vary, but the
account numbers will stay the same most of the time. An example of such an
entry is noted in Exhibit 12.5. This type of entry is a common one and probably
applies to a majority of the journal entries every month. This type of journal entry
standardization can also be taken a step further by creating recurring journal
entries, which can be used for any entries that have the exact same amount of
money in the entry every time. For more information on this approach, see the
‘‘Automate Recurring Journal Entries” section earlier in this chapter.

Cost: Installation time:

12–23 COMPLETE ALLOCATION BASES IN ADVANCE

A number of expenses must be allocated among departments. These can include
occupancy, telephone, insurance, and other costs. For each allocation, there is
usually an allocation base. For example, occupancy may be based on the square
footage occupied by each department, while telephone costs are allocated based
on the number of employees in a department. For each allocation base, someone
in the accounting department must update all of the information based on the latest
financial results, prior to creating a journal entry to allocate the costs to various
departments. Because an allocation base usually includes the latest financial
information before a final cost allocation is made, it tends to be one of the last
action items the accounting department completes before it issues the financial
statements. Because it falls so late in the process, it can have a direct impact on
the total time required to issue financial statements.
The best practice that solves this issue is a straightforward one—use informa-
tion from the previous month as an allocation base. By doing so, there is no allo-
cation base to update in the midst of the frantic release of financial statements.