Free Understanding Business Accounting For Dummies, 2nd Edition by Colin Barrow, John A. Tracy

bookkeeping steps in recording transactions to reconstruct this path. Even if a business doesn't have an outside accountant do an annual audit, the firm's management accountant has frequent occasion to go back to the source documents and either verify certain information in the accounts or reconstruct the information in a different manner. For example, suppose that a salesperson is claiming some suspicious-looking travel expenses; the accountant would probably want to go through all this person's travel and entertainment reimbursements for the past year.
If HM Revenue and Customs comes in for a field audit of your business, you'd better have good audit trails to substantiate all your expense deductions and sales revenue for the year. Rules exist about saving source documents for a reasonable period of time (usually at least five years) and having a well-defined process for making bookkeeping entries and keeping accounts. Think twice before throwing away source documents. Also, ask your accountant to demonstrate, and lay out for your inspection, the audit trails for key transactions - such as cash collections, sales, cash disbursements, stock purchases, and so on. Even in computer-based accounting systems, the importance of audit trails is recognised. Well-designed computer programs provide the ability to backtrack through the sequence of steps in the recording of specific transactions. The HM Revenue and Customs Web site (go to www.hmrc.gov.uk and click on ‘Businesses and corporations') gives you the lowdown on which books to keep and for how long. You can search for info about any unlisted topics by using the search panel at the top of the homepage.
Look out for unusual events and developments
Business managers should encourage their accountants to be alert to anything out of the ordinary that may require attention. Suppose that the debtor balance for a particular customer is rapidly increasing - that is, the customer is buying more and more from your company on credit but isn't paying for these purchases quickly. Maybe the customer has switched more of his or her company's purchases to your business and is buying more from you only because he or she is buying less from other businesses. But maybe the customer is planning to stuff your business and take off without paying his or her debts. Or maybe the customer is secretly planning to go into bankruptcy soon and is stockpiling products before the company's credit rating heads south. To some extent, accountants have to act as the eyes and ears of the business. Of course, that's one of your main functions as business manager, but your accounting staff can play an important role as well.
Design truly useful accounting reports for managers
We have to be careful in this section; we have strong opinions on this matter. We have seen too many hit-and-miss accounting reports to managers - difficult to decipher and not very useful or relevant to the manager's decision-making needs and control functions.
Part of the problem lies with the managers themselves. As a business manager, have you told your accounting staff what you need to know, when you need it, and how to present it in the most efficient manner? Probably not. When you stepped into your position you probably didn't hesitate to rearrange your office and maybe even insisted on hiring your own support staff. Yet you most likely lay down like a lapdog regarding your accounting reports. Maybe you've assumed that the reports have to be done a certain way and that arguing for change is no use.
On the other hand, accountants bear a good share of the blame for the poor reports. Accountants should proactively study the manager's decision-making responsibilities and provide the information that is most useful, presented in the most easily digestible manner.
In designing the chart of accounts, the accountant should also keep in mind the type of information needed for management reports. To exercise control, managers need much more