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.
Legal Structures for Multinational Companies
A multinational company generally has offices and/or factories in different countries and a centralized head office where they coordinate global management. A multinational company (MNC)is a corporate organization that owns or controls the production of goods or services in at least one country other than its home country.
Funds contributed by owners in any business are different from all other types of funds. Equity is the residual value of the business enterprise that belongs to the owners or shareholders. The funds contributed by outsiders other than owners that are payable to them in the future. Liabilities are generally classified as Short Term (Current) and Long Term Liabilities. Current liabilities are debts payable within one year.
The purpose of the general ledger is to sort transaction information into meaningful categories and charts of accounts. The general ledger sorts information from the general journal and converts them into account balances and this process converts data into information, necessary to prepare financial statements. This article explains what a general ledger is and some of its major functionalities.
In most of the automated financial systems, you can define more than 12 accounting periods in a financial year. This article will explain the concept of the adjustment period and the benefits of having adjustment periods. Adjustment periods have their inherent challenges for the users of financial statements and there is a workaround for those who don’t want to use adjustment periods.
Record to report (R2R) is a finance and accounting management process that involves collecting, processing, analyzing, validating, organizing, and finally reporting accurate financial data. R2R process provides strategic, financial, and operational feedback on the performance of the organization to inform management and external stakeholders. R2R process also covers the steps involved in preparing and reporting on the overall accounts.
Accrued expenses, sometimes referred to as accrued liabilities, are expenses that have been incurred but have not been recorded in the accounts. Discuss the need to record accrued liabilities and why they require an adjustment entry. Understand the treatment for these entries once the accounting period is closed and learn to differentiate when the commitments become liabilities.
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.
In every journal entry that is recorded, the debits and credits must be equal to ensure that the accounting equation is matched. In this article, we will focus on how to analyze and recorded transactional accounting information by applying the rule of credit and debit. We will also focus on some efficient methods of recording and analyzing transactions.
For any company that has a large number of transactions, putting all the details in the general ledger is not feasible. Hence it needs to be supported by one or more subsidiary ledgers that provide details for accounts in the general ledger. Understand the concept of the subsidiary ledgers and control accounts.
What is a Business Eco System?
The goal of a business is to generate capital appreciation and profits for its owners or stakeholders by engaging in provision of goods and services to customers within the eco system/framework governed by respective laws(local/international). The eco system involves various entities that the business works with for delivery of a product or service.
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