What Does the Accounting Department Do?

The accounting department is responsible for a large number of administrative functions within
an organization. Though considered "back office" activities, these functions are essential to the
proper operation of a business. The most common responsibilities of the accounting department
are as follows:

 Billings. A billings group assembles information from the shipping and customer order
departments to create invoices that are sent to the company's customers. It is essential to issue
billings on time, in order to enhance cash flows.

 Budgeting. The department assists the rest of the company with the formulation of a company-
wide budget, which is used to plan for expenditures in the coming year, including the purchase
of fixed assets. The previous year’s budget may be used as a baseline to formulate the budget
for the next year.

 Collections. The accounting department is responsible for keeping track of overdue invoice
payments from customers, and uses a variety of methods to extract payment from them,
including dunning letters, phone calls, and attorney letters.

 Financial statements. A reporting group within the department creates adjusting journal entries
to bring the company's initial financial results into compliance with the applicable accounting
framework, writes footnotes to accompany the financial statements, and releases financials
following the end of each reporting period.

 Internal reporting. A cost accounting staff can provide considerable value by calculating the
profitability of various products, product lines, services, customers, sales regions, stores, and so
forth. The areas of analysis may change on a regular basis, so that management can view
different aspects of the business, with an emphasis on improving financial results.

 Payables. The payables staff collects supplier invoices and employee expense reports, verifies
that the billed amounts are authorized for payment, and issues payments to recipients on
scheduled payment dates. These employees also watch for early payment discounts, and take the
discounts if it is economical to do so.

 Payroll. A specialized group collects time worked information from employees, as well as pay
rate information from the human resources department, calculates tax and other deductions from
 employee pay, and issues net pay amounts to employees, either in cash or via checks, pay cards,
or direct deposit.

 Taxes. A specially-trained group of accountants estimates the amount of taxable income that the
business is likely to generate, and periodically remits income tax payments to the government,
based on this estimated amount. The tax group also issues tax filings in a number of other areas,
such as franchise taxes, sales taxes, use taxes, and property taxes.

Additional Responsibilities of an Expanded Accounting Department

There are several additional areas in which there is some question regarding which department
should take responsibility. They are:

 Credit. The granting of credit to customers can be considered a treasury function, but is
usually placed within the accounting department in smaller companies where there is no
treasury staff. A properly-functioning credit group balances the need for more sales with
the risk of generating more bad debts.

 Human resources. The human resources function generates a large amount of

paperwork, some of which is used by the payroll staff to determine employee gross pay
and pay deductions. This function could be placed within the accounting department, or
maintained as an entirely separate department, perhaps reporting to the CFO.