Back To CourseBasics of Accounting
2 chapters | 11 lessons
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Jamie has over 15 years experience as an accounting and business professional and is awaiting the conferral of her master's degree in nonprofit management.
What does an accounting department actually account for? And, what are the primary roles and responsibilities of the accounting department? These are questions many non-accountants and new business owners may be asking.
The accounting department is responsible for recording and reporting the cash flows, both in and out, of a company. There are five basic roles or functions within the department:
Each of these functions will be explored throughout this lesson. Because financial controls are an important part of every area of the accounting department, these will be mentioned along with each function.
The cash flow that comes into the company is known as cash receipts. Cash receipts are handled by the accounts receivable department. This process involves receiving and recording the cash payments from customers for services rendered or products sold. Accounts receivable is responsible for ensuring the customer receives an invoice for the goods or services and that the customer pays the balance due on that invoice.
Financial controls come into play once the cash receipts are received and recorded in the system, and a deposit needs to be made. In order to maintain the best separation of duties possible and prevent any opportunity for wrong doing, it is a good idea to have one person recording the cash and another person making the deposit at the bank.
Cash flow that goes out of the company is called cash disbursements. This is handled by the accounts payable department. Accounts payable is responsible for paying vendors for supplies purchased or any other expenses incurred by the business: utilities, taxes, etc. Accounts payable receives invoices from vendors, records them in the accounting system, and then writes the checks to pay the vendors.
The financial controls occur in order to maintain a good separation of duties in this department. One person should be responsible for recording the accounts payable, and a different person should be responsible for signing the checks.
Although the human resources department is often involved in the activities of employees, the accounting department is often responsible for ensuring employees are paid timely on a regular schedule. The payroll function either receives and records the hours employees work or reviews what human resources has entered and then processes payroll checks for hourly and salaried employees.
The payroll function is also responsible for completing the payroll taxes that may be associated with paying employees. These taxes may include FICA, federal and state withholding, unemployment, and workers' compensation. The proper reporting forms are completed and checks are written for any amounts due to the taxing authorities.
Again, financial controls are used here. Employee supervisors should always review and approve their employees' time cards. One person should record and process payroll, and a different person should sign the payroll checks, comparing the amounts to payroll reports.
One of the most important responsibilities of the accounting department is financial reporting. There are two types of users of financial reports created within the accounting department: internal users and external users.
Internal users include management and boards of directors. Internal users use financial reports to make informed decisions for the direction of the company. These reports help management to determine when financing may be needed or assets, such as equipment, may need to purchased. Management also uses these reports to determine the financial stability of the company by examining the profit or loss positions for the period.
External users include banks, taxing authorities, lenders, etc. These users are anyone who requires financial information from the company but does not actually work for the company. Detailed financial records maintained by the accounting department will help a company to report accurate numbers to the various external users.
The financial controls in place for this function typically occur when members of management or the board of directors reviews the reports prepared. These users will review the numbers and ask questions should anything look out of place. It is always a good idea to have at least two people review financial reports prior to submitting them to external users.
The accounting department is responsible for recording and reporting the cash flow transactions of a company. This department has some key roles and responsibilities, including accounts receivable, accounts payable, payroll, financial reporting, and maintaining financial controls. Recording cash receipts, cash disbursements, processing payroll, and preparing important financial reports are some of the duties completed by the accounting department. Finally, the accounting department must maintain the proper financial controls over every function.
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Back To CourseBasics of Accounting
2 chapters | 11 lessons