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The New Controller
Guidebook
Fifth Edition
Steven M. Bragg
Copyright © 2020 by AccountingTools, Inc. All rights reserved.
Published by AccountingTools, Inc., Centennial, Colorado.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in
any form or by any means, except as permitted under Section 107 or 108 of the 1976 United
States Copyright Act, without the prior written permission of the Publisher. Requests to the
Publisher for permission should be addressed to Steven M. Bragg, 6727 E. Fremont Place,
Centennial, CO 80112.
Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best
efforts in preparing this book, they make no representations or warranties with respect to the
accuracy or completeness of the contents of this book and specifically disclaim any implied
warranties of merchantability or fitness for a particular purpose. No warranty may be created
or extended by written sales materials. The advice and strategies contained herein may not be
suitable for your situation. You should consult with a professional where appropriate. Neither
the publisher nor author shall be liable for any loss of profit or any other commercial damages,
including but not limited to special, incidental, consequential, or other damages.
For more information about AccountingTools® products, visit our Web site at www.accountingtools.com.
ISBN-13: 978-1-64221-042-2
Printed in the United States of America
Table of Contents
Chapter 1 – The Controller Job Description ………………………………………………………………1
The Controller Job Description ……………………………………………………………………………….1
The Chief Financial Officer Job Description ……………………………………………………………..3
The New Controller Checklist ………………………………………………………………………………….6
Chapter 2 – Cash Management……………………………………………………………………………….. 11
Overview of the Bank Reconciliation ……………………………………………………………………… 11
The Bank Reconciliation Procedure ………………………………………………………………………. 12
Bank Reconciliation Problems ………………………………………………………………………………. 13
The Bank Reconciliation Statement………………………………………………………………………… 14
Accounting for Petty Cash ……………………………………………………………………………………. 15
The Cash Forecast ………………………………………………………………………………………………. 17
Cash Investments…………………………………………………………………………………………………. 20
Negative Cash on the Balance Sheet ………………………………………………………………………. 21
Cash Controls …………………………………………………………………………………………………….. 21
Cash Record Keeping…………………………………………………………………………………………… 23
Chapter 3 – Credit and Collections Management …………………………………………………….. 24
Receivables Measurement …………………………………………………………………………………….. 24
Credit Management……………………………………………………………………………………………… 27
Credit Terms and the Cost of Credit ………………………………………………………………………. 30
Collections Management ………………………………………………………………………………………. 32
Other Cash Acceleration Techniques ……………………………………………………………………… 34
The Allowance for Doubtful Accounts ……………………………………………………………………. 35
The Direct Write-off Method …………………………………………………………………………………. 38
Credit and Collection Controls ……………………………………………………………………………… 39
Chapter 4 – Billing Management …………………………………………………………………………….. 41
Billing Management …………………………………………………………………………………………….. 41
Structure of the Invoice ………………………………………………………………………………………… 44
Accounting for Billings ………………………………………………………………………………………… 46
Accrued Revenue …………………………………………………………………………………………………. 48
Accounting for Sales Taxes …………………………………………………………………………………… 49
Sales Tax Exemption Certificates …………………………………………………………………………… 53
Sales Tax Audits ………………………………………………………………………………………………….. 54
Errors in Compliance ……………………………………………………………………………………….. 55
Audit Best Practices …………………………………………………………………………………………. 55
Planning Topics …………………………………………………………………………………………… 55
Prevention Topics ………………………………………………………………………………………… 57
Billing Controls …………………………………………………………………………………………………… 58
Chapter 5 – Inventory Management ……………………………………………………………………….. 59
The Periodic Inventory System ………………………………………………………………………………. 59
The Perpetual Inventory System …………………………………………………………………………….. 60
How to Set Up Inventory Record Keeping ………………………………………………………………. 62
Cycle Counting ……………………………………………………………………………………………………. 62
Inventory Reconciliation ………………………………………………………………………………………. 64
The Physical Inventory Count ……………………………………………………………………………….. 66
Inventory Costing ………………………………………………………………………………………………… 67
The First In, First Out Method …………………………………………………………………………… 67
The Last In, First Out Method …………………………………………………………………………… 68
The Weighted Average Method …………………………………………………………………………. 70
Standard Costing ……………………………………………………………………………………………… 71
The Retail Inventory Method …………………………………………………………………………….. 73
Accounting for Obsolete Inventory ………………………………………………………………………… 74
Chapter 6 – Fixed Assets Management ……………………………………………………………………. 77
Fixed Asset Tracking ……………………………………………………………………………………………. 77
Tag Tracking…………………………………………………………………………………………………… 77
Bar Code Tracking …………………………………………………………………………………………… 78
RFID Tracking – Active Transmission ……………………………………………………………….. 79
RFID Tracking – Passive Transmission ……………………………………………………………… 79
Accounting for Fixed Assets ………………………………………………………………………………….. 80
Fixed Asset Controls ……………………………………………………………………………………………. 82
Controls for Fixed Asset Acquisition …………………………………………………………………. 82
Controls for Fixed Asset Theft ………………………………………………………………………….. 83
Controls for Fixed Asset Disposal ……………………………………………………………………… 84
Fixed Asset Record Keeping …………………………………………………………………………………. 84
Audit Requirements ……………………………………………………………………………………………… 86
Chapter 7 – Accounts Payable Management ……………………………………………………………. 89
Accounts Payable Management …………………………………………………………………………….. 90
Three-Way Matching……………………………………………………………………………………………. 92
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Use Taxes …………………………………………………………………………………………………………… 93
Accounting for Accounts Payable ………………………………………………………………………….. 94
Accounts Payable Controls …………………………………………………………………………………… 96
Accounts Payable Record Keeping ………………………………………………………………………… 97
Chapter 8 – Equity Management …………………………………………………………………………….. 99
Accounting for Stock ……………………………………………………………………………………………. 99
The Sale of Stock for Cash ……………………………………………………………………………….. 99
Stock Issued in Exchange for Non-Cash Assets or Services ………………………………… 100
The Repurchase of Stock (Treasury Stock) ……………………………………………………….. 101
Accounting for Dividends ……………………………………………………………………………………. 102
Chapter 9 – Payroll Management ………………………………………………………………………….. 106
Payroll Cycle Duration ………………………………………………………………………………………. 107
Streamlined Timekeeping ……………………………………………………………………………………. 109
Timekeeping Systems………………………………………………………………………………………….. 110
Computerized Time Clocks …………………………………………………………………………….. 110
Internet-Based Time Tracking …………………………………………………………………………. 112
Electronic Payments ………………………………………………………………………………………….. 113
Payments by Direct Deposit ……………………………………………………………………………. 114
Payments by Pay Card ……………………………………………………………………………………. 115
Employee Self-Service ………………………………………………………………………………………… 116
Manager Self-Service …………………………………………………………………………………………. 116
Transaction Error Analysis …………………………………………………………………………………. 117
Staff Training Program ………………………………………………………………………………………. 117
The Payroll Calendar…………………………………………………………………………………………. 118
Information Confidentiality …………………………………………………………………………………. 120
Accounting for Payroll ……………………………………………………………………………………….. 120
Primary Payroll Journal Entry …………………………………………………………………………. 120
Accrued Wages ……………………………………………………………………………………………… 122
Accrued Bonuses …………………………………………………………………………………………… 123
Accrued Commissions ……………………………………………………………………………………. 124
Manual Paycheck Entry ………………………………………………………………………………….. 125
Employee Advances ………………………………………………………………………………………. 126
Accrued Vacation Pay ……………………………………………………………………………………. 127
Payroll Controls ………………………………………………………………………………………………… 129
General Controls ……………………………………………………………………………………………. 129
Payroll Calculation Controls ……………………………………………………………………………. 130
Check Payment Controls ………………………………………………………………………………… 131
Direct Deposit Controls ………………………………………………………………………………….. 132
Self-Service Controls ……………………………………………………………………………………… 132
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Garnishment Controls …………………………………………………………………………………….. 132
Employee Advances Controls ………………………………………………………………………….. 133
Chapter 10 – Department Management …………………………………………………………………. 135
Schedule of Activities …………………………………………………………………………………………. 135
Error Tracking System ……………………………………………………………………………………….. 136
Process Reviews ………………………………………………………………………………………………… 138
Queue Management …………………………………………………………………………………………… 139
Department Layout ……………………………………………………………………………………………. 140
Skills Review and Training………………………………………………………………………………….. 141
Consolidate Accounting ……………………………………………………………………………………… 142
Chapter 11 – Closing the Books …………………………………………………………………………….. 145
Prior Steps: Update Reserves ……………………………………………………………………………… 146
Core Steps: Issue Customer Invoices ……………………………………………………………………. 147
Core Steps: Value Inventory ……………………………………………………………………………….. 148
Core Steps: Calculate Depreciation …………………………………………………………………….. 151
Core Steps: Create Accruals ……………………………………………………………………………….. 154
Core Steps: Consolidate Division Results ……………………………………………………………… 155
Core Steps: Eliminate Intercompany Transactions …………………………………………………. 155
Core Steps: Review Journal Entries ……………………………………………………………………… 156
Core Steps: Reconcile Accounts …………………………………………………………………………… 156
Core Steps: Close Subsidiary Ledgers ………………………………………………………………….. 158
Core Steps: Create Financial Statements ……………………………………………………………… 159
Core Steps: Review Financial Statements ……………………………………………………………… 159
Core Steps: Accrue Tax Liabilities……………………………………………………………………….. 160
Core Steps: Close the Month ……………………………………………………………………………….. 160
Core Steps: Add Disclosures ……………………………………………………………………………….. 160
Core Steps: Write Cover Letter ……………………………………………………………………………. 161
Core Steps: Issue Financial Statements ………………………………………………………………… 163
Delayed Steps: Issue Customer Invoices ……………………………………………………………….. 163
Delayed Steps: Closing Metrics …………………………………………………………………………… 163
Delayed Steps: Document Future Closing Changes ……………………………………………….. 164
Delayed Steps: Update Closing Procedures ………………………………………………………….. 164
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Soft Close …………………………………………………………………………………………………………. 165
Chapter 12 – The Financial Statements …………………………………………………………………. 168
The Income Statement ………………………………………………………………………………………… 168
Income Statement Overview ……………………………………………………………………………. 168
The Single-Step Income Statement …………………………………………………………………… 172
The Multi-Step Income Statement ……………………………………………………………………. 173
The Condensed Income Statement……………………………………………………………………. 173
The Contribution Margin Income Statement ……………………………………………………… 174
The Multi-Period Income Statement …………………………………………………………………. 175
How to Construct the Income Statement …………………………………………………………… 177
The Balance Sheet ……………………………………………………………………………………………… 179
Overview of the Balance Sheet ………………………………………………………………………… 179
The Common Size Balance Sheet …………………………………………………………………….. 182
The Comparative Balance Sheet ………………………………………………………………………. 184
How to Construct the Balance Sheet ………………………………………………………………… 185
The Statement of Cash Flows ………………………………………………………………………………. 187
Overview of the Statement of Cash Flows…………………………………………………………. 187
The Direct Method …………………………………………………………………………………………. 188
The Indirect Method ………………………………………………………………………………………. 190
How to Prepare the Statement of Cash Flows…………………………………………………….. 192
The Statement of Retained Earnings …………………………………………………………………….. 194
Overview of the Statement of Retained Earnings ……………………………………………….. 194
How to Prepare the Statement of Retained Earnings …………………………………………… 195
Chapter 13 – Public Company Financial Reporting ……………………………………………….. 197
Interim Reporting ………………………………………………………………………………………………. 197
The Integral View ………………………………………………………………………………………….. 197
The Discrete View …………………………………………………………………………………………. 199
Comparison of the Integral and Discrete Views …………………………………………………. 199
Interim Reporting Issues …………………………………………………………………………………. 200
Segment Reporting …………………………………………………………………………………………….. 200
Primary Segment Reporting Issues …………………………………………………………………… 200
The Segment Report ………………………………………………………………………………………. 203
Earnings per Share ……………………………………………………………………………………………. 203
Basic Earnings per Share ………………………………………………………………………………… 204
Diluted Earnings per Share ……………………………………………………………………………… 205
Presentation of Earnings per Share …………………………………………………………………… 210
The Public Company Closing Process ………………………………………………………………….. 210
The Form 10-Q………………………………………………………………………………………………….. 211
The Form 10-K ………………………………………………………………………………………………….. 213
The Form 8-K ……………………………………………………………………………………………………. 215
The Disclosure of Non-GAAP Information ……………………………………………………………. 218
v
Chapter 14 – Management Reports ……………………………………………………………………….. 221
The Duration of a Report ……………………………………………………………………………………. 221
Responsibility Reporting …………………………………………………………………………………….. 222
The Flash Report ……………………………………………………………………………………………….. 222
Expense Reporting …………………………………………………………………………………………….. 224
Margin Reporting ………………………………………………………………………………………………. 226
Variance Reporting ……………………………………………………………………………………………. 229
The Purchase Price Variance …………………………………………………………………………… 230
Material Yield Variance………………………………………………………………………………….. 231
Labor Rate Variance ………………………………………………………………………………………. 232
Labor Efficiency Variance ………………………………………………………………………………. 233
Variable Overhead Spending Variance ……………………………………………………………… 234
Variable Overhead Efficiency Variance ……………………………………………………………. 235
Fixed Overhead Spending Variance …………………………………………………………………. 236
Selling Price Variance ……………………………………………………………………………………. 237
Sales Volume Variance …………………………………………………………………………………… 238
Problems with Variance Analysis …………………………………………………………………….. 239
Which Variances to Report ……………………………………………………………………………… 239
How to Report Variances ………………………………………………………………………………… 240
Chapter 15 – Ratio Analysis …………………………………………………………………………………. 243
Deflated Sales Growth ……………………………………………………………………………………….. 243
Deflated Profit Growth ………………………………………………………………………………………. 244
Core Earnings Ratio ………………………………………………………………………………………….. 245
Margin of Safety ………………………………………………………………………………………………… 247
Return on Equity ……………………………………………………………………………………………….. 248
Days Sales Outstanding ……………………………………………………………………………………… 251
Best Possible DSO …………………………………………………………………………………………….. 253
Inventory Turnover Measurements ………………………………………………………………………. 253
Sales Productivity ……………………………………………………………………………………………… 254
Sales Backlog Ratio …………………………………………………………………………………………… 255
Measurement Consistency …………………………………………………………………………………… 256
Measurements and the Soft Close ………………………………………………………………………… 257
Chapter 16 – Budgeting ………………………………………………………………………………………… 259
The System of Budgets………………………………………………………………………………………… 259
The Reasons for Budget Iterations ……………………………………………………………………….. 264
Overview of the Revenue Budget ………………………………………………………………………….. 265
vi
The Ending Finished Goods Inventory Budget ………………………………………………………. 267
The Production Budget ………………………………………………………………………………………. 271
Production Budgeting for Multiple Products …………………………………………………………. 273
The Direct Materials Budget (Roll up Method) ……………………………………………………… 273
The Direct Materials Budget (Historical Method) ………………………………………………….. 275
The Direct Labor Budget ……………………………………………………………………………………. 277
The Manufacturing Overhead Budget …………………………………………………………………… 277
The Sales and Marketing Budget …………………………………………………………………………. 279
Diminishing Returns Analysis ……………………………………………………………………………… 281
The Research and Development Budget ………………………………………………………………… 282
The Administration Budget …………………………………………………………………………………. 284
The Compensation Budget ………………………………………………………………………………….. 287
The Budgeted Income Statement ………………………………………………………………………….. 290
The Budgeted Balance Sheet ……………………………………………………………………………….. 291
Accounts Receivable ……………………………………………………………………………………… 292
Inventory ………………………………………………………………………………………………………. 294
Fixed Assets ………………………………………………………………………………………………….. 295
Accounts Payable…………………………………………………………………………………………… 296
Additional Estimation Elements ………………………………………………………………………. 297
The Cash Line Item ……………………………………………………………………………………….. 298
The Financing Budget ………………………………………………………………………………………… 298
The Compiled Balance Sheet …………………………………………………………………………… 301
Chapter 17 – Capital Budgeting ……………………………………………………………………………. 303
Overview of Capital Budgeting ……………………………………………………………………………. 303
Constraint Analysis ……………………………………………………………………………………………. 305
Net Present Value Analysis …………………………………………………………………………………. 306
The Payback Method ………………………………………………………………………………………….. 308
Capital Budget Proposal Analysis ……………………………………………………………………….. 310
The Outsourcing Decision…………………………………………………………………………………… 311
The Capital Budgeting Application Form ……………………………………………………………… 312
The Post Installation Review ……………………………………………………………………………….. 315
The Lease versus Buy Decision ……………………………………………………………………………. 316
Chapter 18 – Computer System Selection and Installation ……………………………………… 318
Computer System Selection …………………………………………………………………………………. 318
Requirements Development …………………………………………………………………………….. 319
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The Request for Proposals ………………………………………………………………………………. 321
Bidders Conference ……………………………………………………………………………………….. 321
Proposal Evaluation ……………………………………..
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