Accounting record keeping policies and procedures

Record keeping is essential for operating a business. Record keeping can be manual or computer-based. Both ways have their advantages and disadvantages. In either case, cost of record keeping is usually high.

1. Why record keeping policies and procedures are important

Here we are going to make a general overview of manual record keeping. As mentioned earlier, record keeping involves a lot of costs: these costs include storage costs (e.g., labor, space, equipment, computer systems, insurance, and transportation) as well as the cost of lost records (e.g., in the case of a lawsuit or forensic investigation). To minimize record keeping costs, it is important to develop a proper record keeping system, which requires a set of policies and procedures.

2. Record keeping policies in accounting

Record keeping policies serve as the basis for record keeping procedures. These policies usually identify:

  • types of documents that should be stored;
  • length of time these documents should be retained;
  • storage area; and
  • responsibilities of the person(s) in charge of record keeping.

For instance, record keeping policies may include the following (this is non-exhaustive list):

  • Document retention policy
  • Storage area policy

Document retention policy: this policy should specify the number of years each type of document should be stored before it is destroyed. Often local or federal regulation can help to determine the length of time each document type should be retained. If there is the possibility of a lawsuit (e.g., lawsuits in the past in specific area), then the statute of limitations can be used to determine the number of years documents should be stored. Important to note, some documents should never be destroyed that is, they should be kept as long as the company exists. Such documents often include certificate of incorporation, bylaws and constitution, Board minute book, general ledger, financial statements, trademarks, patents, copyrights, etc.

Examples of types of documents and the length of a retention period may be as follows (non-exhaustive list)*:

  • Articles of incorporation: as long as the company exists
  • Bank reconciliation: 6 years or as required by law
  • Bank statement: 6 years or as required by law
  • Customer credit application: as long as the customer is active
  • Financial statements: as long as the company exists
  • General ledger: as long as the company exists
  • Journal entry: 10 years or as required by law

* Disclaimer: Consult your legal advisor about the legal requirements for record keeping in your industry, territory, etc. and those many vary.

If possible, the document retention function should be centralized: that is, there should be a specific position in the company responsible for ensuring recording keeping policies and procedures.

Storage area policy: this policy should specify the characteristics, condition, and safety of the storage area (e.g., fireproofing, temperature and humidity levels).

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