Accounting Department Definition
Accounting department refers to the division in a firm that looks after the preparation of financial statements, maintenance of general ledger, payment of bills, preparation of customer bills, payroll, and more. In other words, they are responsible for managing the overall economic front of the business. It is impossible for any business, whether a small firm operating out of home or a large multinational company, to function for too long without an accounting department of any kind.
Functions of Accounting Department
- To maintain and record all business transactionsBusiness TransactionsA business transaction is the exchange of goods or services for cash with third parties (such as customers, vendors, etc.). The goods involved have monetary and tangible economic value, which may be recorded and presented in the company's financial statements. accurately and comprehensively in a systematic way such that it could be retrieved and reviewed at any time.
- To maintain adequate internal controlsInternal ControlsInternal control in accounting refers to the process by which a company implements various rules, policies, or procedures to ensure the accuracy of accounting and finance information, safeguard the various assets of the business, promote accountability in the business, and prevent the occurrence of frauds in the company. within the organization to safeguard its valuable resources.
- To provide a basis for performance assessment and create accountability across the organization.
- To keep track of costs incurred by the company costs and advise the modification of existing operations with the intent to reduce operating costsOperating CostsOperating expense (OPEX) is the cost incurred in the normal course of business and does not include expenses directly related to product manufacturing or service delivery. Therefore, they are readily available in the income statement and help to determine the net profit..
- To support senior management in the decision-making process through the appropriate presentation of the financial data.
- To plan based on anticipation of business needs and expected availability of resources.
Roles & Responsibilities
- One of the primary responsibilities is to properly collect all the financial data and then prepare the financial statementsFinancial StatementsFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels./ reports. These reports are used in the preparation of budgets, forecasts, and other decision-making reports. Additionally, these reports are also used for communication with lenders, investors, and other stakeholders.
- Maintenance of a healthy relationship with the vendors by ensuring that they get paid on time. However, they should look for opportunities to save money by availing of discounts/ incentives due to timely or advance paymentsAdvance PaymentsAdvance payment is made by a buyer to the seller before the actual scheduled time of receiving the goods and services. It protects the seller from the risk of non-payment. Additionally, it helps sellers financially in the production of the goods or rendering of services.. At the same time, the accounting department should also ensure that the minimum amount of money goes out per payment, but without any late payment charges.
- Track account receivablesAccount ReceivablesAccounts receivables refer to the amount due on the customers for the credit sales of the products or services made by the company to them. It appears as a current asset in the corporate balance sheet. and outstanding invoices, and advice in case any collection actions are required. The accounting department should ensure that the customers pay the invoices on time and maintain a cordial/ friendly relationship with them.
- It is solely responsible for the payroll functionPayroll FunctionPayroll refers to the overall compensation payable by any organization to its employees on a certain date for a specific period of services they have provided in the entity. This total net pay comprises salary, wages, bonus, commission, deduction, perquisites, and other benefits.. They have to ensure that all the employees get paid timely and accurately. Additionally, the department should also make sure that employee taxes are assessed accurately, and the payments are made timely to the state and federal authorities.
- They need to maintain financial controls via reconciliations and adherence to the applicable standards of accounting, such as US GAAP. All of these practices are implemented to prevent any fraud and theft. As a finance controller, the department should ensure proper maintenance of the procedures without any slack.
Accounting Department Structure
Most companies have more than one staff member in their accounting department, and hence they have to set an organizational structure to streamline its management. In general, it comprises of Chief Financial Officer (CFOCFOThe full form of CFO is Chief Financial Executive, and he or she is a top level executive of the firm who is responsible for the firm's overall finance functions and has the authority to make financial decisions for the organization. ), Financial Controller, Managers, and Accountants. The structure is as follows:
- The CFO is at the top of the department and reports directly to the owner of the business or the Chief Operating Officer (CEO).
- The Financial Controller reports to the CFO and has more specific responsibilities within the department.
- The Finance Controller generally has a team of Managers – Payroll Manager, Accounts Receivable Manager, and Accounts Payable Manager.
- Each division manager usually has a team of Accountants.
Value of Accounting Department
The accounting department plays a vital role in running a business as it helps in tracking both revenue (money in) and expenses (money out) while ensuring compliance with all statutory requirements. Additionally, it also provides quantitative financial information to management, lenders, investors, and other stakeholders, who use it for making informed business decisions.
Key Positions of the Accounting Department
The following are some of the key positions:
- Chief Financial Officer (CFO): The CFOs are usually at the top of the finance department of large corporates. They are responsible for overseeing the financial health of the business and managing the overall finance department, which includes financial planningFinancial PlanningFinancial planning is a structured approach to understanding your current and future financial goals and then taking the necessary measures to accomplish them. Because this does not begin and end in a specific time frame, it is referred to as an ongoing process. & reporting, short & long-term business strategy, auditing, internal risk management, etc. They also help senior management understand the financial implications of various ongoing activities – within and outside the organization.
- Financial Controller: The Financial Controllers work alongside the CXOs, and they are responsible for financial accountingFinancial AccountingFinancial accounting refers to bookkeeping, i.e., identifying, classifying, summarizing and recording all the financial transactions in the Income Statement, Balance Sheet and Cash Flow Statement. It even includes the analysis of these financial statements. as well as the preparation of reports on project management, budget, and more. However, their major focus is on managing immediate financial issues.
- Treasury Manager: The Treasury Managers help in the formulation and development of various treasury policies, which include identification of best investment opportunities, optimized usage of credit facilitiesCredit FacilitiesCredit Facility is a pre-approved bank loan facility to businesses allowing them to borrow the capital amount as & when needed for their long-term/short-term requirements without having to re-apply for a loan each time. , reduction of financing costsFinancing CostsFinancing costs refer to interest payments and other expenses incurred by the company for the operations and working management. An enterprise often borrows money from different financing sources to run their operations in return for interest payments and capital gains., etc.
- Accounting Manager/ Chief Accountant/ Accounting Supervisor: These managers are responsible for maintaining and reporting all the financial transactions. They also establish and enforce the accounting principles based on the auditing policy and statutory requirements.
- Accountant: The AccountantsAccountantsAn accountant is a finance professional responsible for recording business transactions on behalf of a firm, reporting the firm’s performance and issuing financial statements. Thus, an accountant plays an important role whether it is a small domestic entity or a large multinational company. play a vital role in an accounting department as they are involved in the measurement and interpretation of all the financial information.
This has been a guide to Accounting Department and its definition. Here we discuss the objectives, roles & responsibilities, and structure along with a detailed explanation. You may also have a look at these articles for enhancing your knowledge in accounting –