A hierarchy is an ordered series of related objects. You can relate hierarchy with “pyramid” - where each step of the pyramid is subordinate to the one above it. One can use drill up or down to perform multi-dimensional analysis with a hierarchy. Multi-dimensional analysis uses dimension objects organized in a meaningful order and allows users to observe data from various viewpoints.
A hierarchy is an ordered series of related objects. You can relate hierarchy with “pyramid” - where each step of the pyramid is subordinate to the one above it. One can use drill up or down to perform multi-dimensional analysis with a hierarchy. Multi-dimensional analysis uses dimension objects organized in a meaningful order and allows users to observe data from various viewpoints. These hierarchies need to be mapped to systems to ensure they are capturing the relevant business process information at relevant nodes to provide meaningful information for internal and external reporting.
The account hierarchy allows you to map complex organizational structures of a business partner (for example, buying group, co-operative or chain of retail outlets). When you create a hierarchy structure, you form groups of business partners (for example, for purchasing groups). You can use them for statistical purposes and for marketing and accounting and other meaningful analyses.
Organizational hierarchies represent the relationships between the units/segments that make up your business.
Larger organizations may require some hierarchies that are based on business units and other hierarchies that are based on shared services, such as human resources and IT. They need to create cost centers in shared service departments and position them under business units, so that the costs of shared services are appropriately allocated. Now we will explore some examples of reporting needs arising out of these different hierarchies and dimensions. Any how they add complexity at transactional level to record relevant information appropriately.
Some areas where we need to deal with dimensions/hierarchies are:
Defining organizational hierarchies enable to view and report on your business from different perspectives. You set up a hierarchy of legal entities for tax, legal, regulatory or statutory reporting. Various Legal entities can enter into legal contracts and are required to prepare statements that report on their performance. While performing business activities we need to capture and classify transactions at legal entity level to be able to identify transactions that belong to a specific legal entity. Therefore, there exists a need to define boundary at legal entity level to enable data classification, consolidation, security and reporting at these entity levels.
A large corporate may create a central mailroom to receive all invoices from its vendors for which it need to make payment. These invoices are raised on separate legal entities within the same corporate group, but mailed to a central processing center for accounting and payment. The shared service resource who is working on these invoices must specify in the Accounting System the different legal entities to ensure proper treatment of these transactions. The payments should be issued from the respective bank accounts belonging to the legal entity on which the invoice has been raised.
You can create a hierarchy for purchasing function to control purchasing policies, rules, and business processes.
What Is a General Ledger? General Ledger (also known in accounting as the GL or the Nominal Ledger) is at the heart of any accounting system. A general ledger is the master set of accounts that summarize all transactions occurring within an entity. Ledger is the skillful grouping and presentation of the Journal entries. Learn the accounting fundamentals, general ledger process, and general ledger flow.
Global Business Services (GBS) Model
Global business services (GBS) is an integrated, scalable, and mature version of the shared services model. Global Business Services Model is a result of shared services maturing and evolving on a global scale. It is represented by the growth and maturity of the Shared services to better service the global corporations they support.
Learn the typical accounting cycle that takes place in an automated accounting system. We will understand the perquisites for commencing the accounting cycle and the series of steps required to record transactions and convert them into financial reports. This accounting cycle is the standard repetitive process that is undertaken to record and report accounting.
A legal entity is an artificial person having separate legal standing in the eyes of law. A Legal entity represents a legal company for which you prepare fiscal or tax reports. A legal entity is any company or organization that has legal rights and responsibilities, including tax filings.
A joint venture (JV) is a business agreement in which the parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets. A joint venture takes place when two or more parties come together to take on one project.
Operational Structures in Business
Large organizations grow through subsidiaries, joint ventures, multiple divisions and departments along with mergers and acquisitions. Leaders of these organizations typically want to analyze the business based on operational structures such as industries, functions, consumers, or product lines.
When the quantum of business is expected to be moderate and the entrepreneur desires that the risk involved in the operation be shared, he or she may prefer a partnership. A partnership comes into existence when two or more persons agree to share the profits of a business, which they run together.
Multi Currency - Functional & Foriegn
Currency is the generally accepted form of money that is issued by a government and circulated within an economy. Accountants use different terms in the context of currency such as functional currency, accounting currency, foreign currency, and transactional currency. Are they the same or different and why we have so many terms? Read this article to learn currency concepts.
A subsidiary is a company that is completely or partly owned by another corporation that owns more than half of the subsidiary's stock, and which normally acts as a holding corporation which at least partly or wholly controls the activities and policies of the daughter corporation.
After reading this article the learner should be able to understand the meaning of intercompany and different types of intercompany transactions that can occur. Understand why intercompany transactions are addressed when preparing consolidated financial statements, differentiate between upstream and downstream intercompany transactions, and understand the concept of intercompany reconciliations.
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