What Is an Accounting Manual and What Does It Include?

Companies rely on standardized procedures to ensure financial accuracy and consistency. An accounting manual serves as a key resource, outlining the policies and processes that guide an organization’s financial activities. It helps maintain uniformity in recordkeeping, reporting, and compliance while serving as a reference for employees handling financial transactions.

A well-structured manual enhances efficiency, reduces errors, and ensures adherence to regulatory requirements. By clearly defining responsibilities and protocols, it also strengthens internal controls.

Common Sections

An accounting manual defines an organization’s financial management practices, ensuring consistency in operations. Key components typically include the chart of accounts, journal entries, and financial reporting, each essential for maintaining organized records and accurate reporting.

Chart of Accounts

The chart of accounts categorizes all financial transactions, assigning each account a unique identification number in a hierarchical format: assets (1000–1999), liabilities (2000–2999), equity (3000–3999), revenues (4000–4999), and expenses (5000–9999).

A well-defined chart of accounts ensures consistency in recording financial activities, simplifying financial statement preparation under frameworks like Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). Customization aligns with industry-specific needs, such as healthcare organizations tracking patient service revenue or manufacturers categorizing raw material costs separately. Regular updates keep the chart relevant to operational changes and regulatory requirements.

Journal Entries

Journal entries record financial transactions using the double-entry accounting system, ensuring that every transaction affects at least two accounts—one debited and one credited—to maintain the accounting equation (Assets = Liabilities + Equity).

Each entry includes the transaction date, affected accounts, debits, credits, and a brief description. Special journals, such as sales, purchases, cash receipts, and cash disbursements journals, streamline repetitive transactions. Adjusting entries, including accrued revenues and expenses, align financial records with the accrual basis of accounting under GAAP and IFRS.

Properly documented journal entries support audit readiness and regulatory compliance. Automated accounting systems include controls to prevent errors, while review and approval processes help maintain accuracy.

Financial Reporting

Financial reporting involves preparing key financial statements, including the balance sheet, income statement, cash flow statement, and statement of changes in equity. These reports provide insights into an organization’s financial health and inform decisions by management, investors, and regulators.

GAAP and IFRS establish presentation and disclosure requirements. For instance, IFRS mandates a statement of comprehensive income, while GAAP allows either a combined presentation or a separate income statement and statement of comprehensive income. The manual should specify reporting timelines, responsible personnel, and reconciliation procedures to ensure accuracy.

Interim and year-end reporting procedures should be clearly defined, including requirements for external audits, tax filings, and SEC reporting for public companies. Proper documentation reduces the risk of misstatements and regulatory non-compliance.

Documentation and Recordkeeping

Accurate financial records support transparency, compliance, and audits. Organizations must establish clear guidelines on document retention, storage, and accessibility to safeguard financial integrity and meet legal obligations.

A recordkeeping policy should specify which documents must be retained, such as invoices, contracts, payroll records, tax filings, and bank statements. Retention periods vary by regulation—IRS guidelines require tax records to be kept for at least three years, while the Sarbanes-Oxley Act mandates that public companies retain audit workpapers for seven years.

Digital recordkeeping is now standard, with cloud-based solutions providing secure storage and automated backups. Maintaining supporting documents for expense reimbursements ensures compliance with corporate policies and helps prevent fraudulent claims. Tracking vendor invoices and payment approvals in accounts payable prevents duplicate payments and disputes.

Internal Controls

Strong internal controls protect assets, ensure financial accuracy, and reduce fraud risk. Organizations must implement oversight mechanisms, segregation of duties, and authorization protocols to minimize financial mismanagement.

Segregation of duties ensures that no single individual has unchecked control over financial transactions. For example, in payroll processing, one employee enters data, another approves disbursements, and a third reviews payroll reports to detect discrepancies.

Authorization controls require managerial approval for key transactions. Many companies use tiered approval structures, where expenditures over a certain threshold—such as $50,000—require executive authorization. Electronic approval workflows in enterprise resource planning (ERP) systems create an audit trail, documenting approvals for compliance with regulations like the Sarbanes-Oxley Act.

Reconciliation procedures and periodic audits help detect irregularities. Bank reconciliations compare internal records with bank statements to identify unauthorized withdrawals, duplicate payments, or unrecorded transactions. Internal audits assess adherence to financial policies and identify weaknesses in control systems. Public companies subject to Sarbanes-Oxley must undergo an annual assessment of internal controls over financial reporting to ensure financial statements are free from material misstatements.

Policy for Handling Adjustments

Adjustments ensure financial records accurately reflect an organization’s financial position. Whether due to errors, changes in estimates, or new information, adjustments must follow a structured process to prevent misstatements.

Adjustments identified before a reporting period closes are incorporated into routine accounting processes, while those discovered after financial statements are finalized may require restatements or disclosures. Materiality thresholds, often based on a percentage of net income or total assets, determine whether an adjustment requires formal disclosure. The SEC’s Staff Accounting Bulletin No. 99 provides guidance on assessing materiality beyond numerical thresholds, considering factors like regulatory scrutiny or executive compensation implications.

Supporting documentation, such as revised invoices, updated fair value assessments, or recalculated depreciation schedules, must be reviewed before adjustments are made. Any changes to financial records should be authorized by appropriate personnel. Automated accounting systems track modifications, logging who made the adjustment, when it occurred, and the rationale behind it.

Compliance Requirements

Organizations must comply with financial regulations and reporting standards to avoid penalties and maintain legal standing. Compliance requirements vary by industry, company size, and jurisdiction, requiring a structured approach to ensure adherence.

Public companies in the United States must follow Securities and Exchange Commission regulations, including periodic filings such as Form 10-K and Form 10-Q. These filings must comply with GAAP and include disclosures mandated by the Sarbanes-Oxley Act. Private companies, while not subject to SEC oversight, must still comply with tax regulations enforced by the Internal Revenue Service and state tax authorities. Multinational corporations may need to follow International Financial Reporting Standards, requiring additional considerations for cross-border financial reporting.

Tax compliance includes corporate income tax filings, payroll tax obligations, and sales tax remittances. Companies must track tax deadlines, report taxable income accurately, and maintain documentation to support deductions and credits. Non-compliance can result in fines, interest charges, or audits, making it essential to establish internal controls that monitor tax liabilities. Automated tax software and external tax advisors help navigate complex tax regulations, reducing the risk of errors.