Dictionary / Power of Attorney
What does Power of Attorney mean in accounting?
Quick definition
GeneralAn instrument authorizing one person to act as agent for another, either generally or for some specified purpose. This term guides how bookkeepers record, classify, and explain related transactions in routine financial reporting.
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Examples
The CPA files under a signed IRS form
You run a bakery. On March 4 you sign IRS Form 2848 naming your CPA as your representative for your 2025 federal business return. That signed form is the power of attorney: the instrument that lets her act as your agent for that tax matter, not an asset you post. On April 11 she e-files the return, and a $2,140 balance due leaves checking; debit Income tax expense (or estimated tax) $2,140 and credit Checking $2,140. File Form 2848 with the tax folder, and do not add a Power of Attorney line on the balance sheet.
The bank rejects the bookkeeper's wire
You hire a contract bookkeeper for your espresso bar. On October 8 she tries to send a $4,200 wire from checking to a coffee roaster for the October bean invoice. The credit union refuses: she has the Xero login, but you never signed a bank power of attorney or added her as a signer. The instrument is missing, so she is not your agent for moving cash. You send the wire yourself that day: debit accounts payable $4,200, credit Checking $4,200, and do not treat software access as the paper that authorizes a transfer.
Why it matters
A power of attorney is the written instrument that lets one person act as your agent, generally or for a named purpose. You need it because banks, the IRS, and closings will not treat a bookkeeper login, a verbal okay, or a job title as authority to sign a return, move cash, or close a sale. You will not post this most months; it shows up when you appoint a CPA, office manager, or closer, or when someone claims they can act for you. This is not a general ledger account and not an asset: file the signed paper with the tax, bank, or deal file, then record the payment, transfer, or sale they were authorized to complete.
Further reading
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What is Power of Attorney in bookkeeping?
An instrument authorizing one person to act as agent for another, either generally or for some specified purpose.
When should I use Power of Attorney?
Use Power of Attorney when the transaction facts match its definition and you need the ledger and financial statements to reflect the correct account and period.
What is a common mistake with Power of Attorney?
Power of Attorney is used for power of attorney entries, while Paid-In Surplus covers a related but distinct bookkeeping purpose. Review both terms before posting unusual transactions. A common mistake is applying it by label only instead of checking the underlying transaction details.