Question

Prepare an accounting policy on processing of financial transactions for newly established business. Discuss the policy in details for the following topics:

1. Scope of the policy
2. Responsibilities
3. Chart of accounts and general ledgers
4. Accounting conventions including accounting standards
5. Bank Accounts and reconciliation
6. Depreciation methods
7. Valuation of assets
8. Financial reports
9. Consolidation procedures for subsidiaries

   Prepare an accounting policy on processing of financial transactions for newly established business. Discuss the policy in details for the following topics:

10. Scope of the policy
11. Responsibilities
12. Chart of accounts and general ledgers
13. Accounting conventions including accounting standards
14. Bank Accounts and reconciliation
15. Depreciation methods
16. Valuation of assets
17. Financial reports
18. Consolidation procedures for subsidiaries

Answer 1

1) Scope of the policy : Scope of accounting policy is generally wide and extends in trade, government, business financial institutions and every other arena.Accounting is essential for all business organisation's or even for individuals and families. The main function that comes under the scope of accounting is to keep the accounts of financial transactions. All financial, business concerns, non - trading concerns, government Accountants , professionals comes under the scope of accounting. In every business concern' account' is considered to be the 'Language of Business'.

2) Responsibilities of accounting : The accounting department in every business concern is responsible for recording and reporting both the cash inflows and cash outflows of a company. The five basic roles or functions of accounting department include account receivable, accounts payablep payroll, financial control, financial reporting. Other responsibility accounting involves a company's internal accounting and budgeting.

3) Chart of accounts abd general ledgers: A chart of accounts is the process of listing of the names of tge accounts that a company has identified and made available for recording transactions in its general ledger. To best suit the needs of the company, it is given the flexibiityto alter chart of accounts as per the changing needs. A chart of accounts will be large and complex for international corporation with several dimensions and shall for small local retailers.

4) Accounting conventions including accounting standards:An accounting convention is used as a common practice or guideline when recording business transactions. The gaps not yet addresses by accounting standards are served to be filled by accounting conventions.Industry-specific accounting largely use accounting conventions .Accounting conventions are a necessary part of the accounting profession, since they result in transactions being recorded in the same way bt multiple organisations. This allows the company in reliable comparison of financial results, financial postition and cash flows of many organisations.

5) Bank Accounts and Reconciliation: A bank reconciliation is the process of matching the balances in an entity's accounting records for cash account to the corresponding information on a bank statement. It should be completed at regular intervals for all bank accounts to correctly ensure that company's cash records are appropriate.It may also detect some types of fraud, that could be used to design better controls over the receipt and payment of cash.

6) Depreciation methods: Depreciation methods allows a business to deduct for products or assets that lose significant value over time. The four main methods include straight-line, double declining balance , units of production, sum of years digits. Depreciation methods seeks out the necessity for businesses to determine the projected loss of value of certain assets over time. This thus allows for an effective allocation of costs throughout the' useful life' of the asset in the correct period.

7) Valuation of assets: Asset valuation is the process of determining the current value of a company's assets such as buildings, equipments, brands, goodwill etc. Valuations of assets are needed for many reasons such as investment analysis, capital budgeting, merger and acquisition transactions, financial reporting, taxable events to determine the proper tax liability and in litigation.

8) Financial reports: Financial reports are written records that convey the financial performance and business activities of a company. To ensure accuracy and for tax, financing, or investing purposes, financial reports are audited by government agencies, accountants, firms etc. The standard contents of a set of financial statements are Balance sheet, Income statement, Statement of cash flows, Supplementary notes. They are summary-level reports about an organization's financial position, financial results and cash flows.

9) Consolidation procedures for subsidiaries: Consolidation accounting is the process which combines the financial results of several subsidiary companies into the combined financial results of the parent company. Thid method is typically used when a parent company owns more than 50% of the shares of another entity. The steps that document the consolidation accounting process flow are record intercompany loans, charge corporate overhead, charge payables, charge payroll expenses, complete adjusting entries, investigate asset, liability,and equity balances, review subsidiary financial statements , eliminate intercompany transactions , review parent financial statements, record income tax liability, close subsidiary books, close parent company books and issue financial statements.