Management accounting presented inunderstandablehumanaccessiblelanguage.

Management accounting presented inhumanaccessiblelanguage.

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Management accounting

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How to develop an account policy

How to develop an account policy

It is the most contradictory document in management accounting system. It is said to be an integral part of enterprise documentation, but in most cases hardly can we find it (remember, we are talking about the account policy in management accounting system), and if we succeed in finding it, it is rarely used at the enterprise.

Let’s try another way.


«Account policy» is a set of rules concerning accounting or management accounting, aimed at reaching the top level of transparency in the given sphere.

That is, this document enables understanding the scheme of the economic transactions in the accounting database as well as the principles of report formation (based on the existing material).

Conventionally the account policy includes the detailed information about all the documents providing the basis for the transactions in the accounting base (even if the transactions are carried out once a year or every three years), about the accounts used in posting, but not only those used in day-to-day operations, but also the POTENTIAL accounts for this enterprise.


If you choose the conventional way you will end up with a thousand-page book and tiredness after the difficult, monotonous work, of course, you will be able to exclaim: I have done it!

You “manuscript” might be used as a sample for the developers in the sphere of management accounting, but they will not be able to follow it, as its reading is time-consuming, so at work developers are busy with the other tasks and at home they can find something much more interesting. Even if someone tries to read it, probably he will forget it as soon as the last page of the “manuscript” is finished.

What should I do to prevent it?

You should develop a brief document. As brief as possible. I clearly understand that it is impossible to describe an account policy in a nutshell, but it is useless to drag it out!
In fact, 95 % of the enterprise activities are guided by the few rules which can fit just 10-15 pages (without documents samples).
What should we mention while developing the account policy?

  1. Chart of accounts.
  2. Business processes.
  3. Documents used.
  4. Reports received.
  5. Rules of submitting reports.

To be more precise:

Chart of accounts. There is no need to describe each and every account. 90 % of these accounts are used at ALL the enterprises, no matter we are talking about a seller of Chinese mass-produced items or a producer of rocket engines. Why should you include in the account policy the definition of the inventory, or accounts receivable, or main assets, or finished products? Certainly, some accounts have the unique analytics that is to be described. Or if you have a production section in accounting, some unusual usage of accounts is possible, so it is necessary to describe it! And no more, all the rest is, by default, typically interpreted as in any accounting textbook.

Business processes. While implementing management accounting we described all the business processes at the enterprise. Now it is necessary just to fill the existing descriptions of the business processes.

Documents used. In the description of business processes we have mentioned all the documents providing the basis for the transactions in the accounting base. So, it is useless to describe the document that is of standard type (each accounting software includes them), if it is not typical, description is needed. If you want, you can enclose the samples of all existing documents with the account policy, but it will not be sufficient, just will add some pages to the file.

Reports received. These documents are to be described in details because they are unique, as a rule. It is necessary to explain carefully the economic sense of each clause in every report.

For example, profit and loss account is to include the exact information about the expense item and the corresponding clause:

On business trip one of the employees had a meal with the important person. What kind of clause is it? Travel or entertaining expenses? It can fit both categories, but it is to be clearly stated in the account policy.

In terms of accounting it does not matter what category of expenses covers this or that transaction, but if you choose one particular category, it is to be used in all the cases on constant basis. Then you can get the proper reports with the same economic sense of each article.

Rules of submitting reports. This section describes the procedures and deadlines of submitting the reports. For example, balance sheet, profit and loss account and cash flow statement are to be presented to the director on the fifth (5th) working day of the month following the reporting period (or on the tenth (10th) working day, each enterprise sets its own terms). The ready reports are signed by the economist (or accountant) and referred to the chief financial officer (or chief accountant). Chief financial officer (or chief accountant) verifies and approves the reports, then presents them to the director of the enterprise.
The above-mentioned information will be sufficient to form the document providing the basis for the transactions in the accounting base.

More information about the regulations. The enterprises, where the documents are submitted not by the accountants, but by the operators (it is called a decentralized documents input), have many additional regulations how to form, process and refer the documents to the accounting department. Unfortunately, these regulations are necessary, but it is better to describe them separately, not in terms of the account policy, despite the fact that they are certainly to conform to it. I suggest that they should comprise a separate document not because of the methodological problems, but the psychological ones. When the account policy is too-many-page document, nobody reads it. It will not be ever opened.

But the head of the enterprise has to charge the financial director (for example, chief financial officer) with the duty of periodical checking whether the existing accounting methods correspond to the account policy. At least, every six months. If there is a divergence from the policy, he is to change either the situation or the document.

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