Modern business organizations run multiple product and service lines, operate globally, leverage large number of registered legal entities, and operate through complex matrix relationships. To stay competitive in the current global business environment, they must often develop highly diverse and complex organizational structures that cross international borders.
Modern business organizations run multiple product and service lines, operate globally, leverage large number of registered legal entities, and operate through complex matrix relationships. To stay competitive in the current global business environment, they must often develop highly diverse and complex organizational structures that cross international borders.
The various, multifaceted tasks and activities of an organization have to be divided into smaller, manageable components to facilitate efficient achievement of business objectives. Regulatory and management needs are the main driving forces behind organizational structures. These complexities create need for advanced operational and supporting business processes to drive organization wide effectiveness, efficiency and achieve business objectives.
This forces companies to create a diverse array of subsidiaries, legal entities, organizations, and accounting processes to ensure a smooth and profitable business flow. Tax considerations also impact how businesses construct these complex legal structures. In this section we will explore the different legal and operational structures that are commonly adopted by these global conglomerates.
Every organization must have a registered or legislated legal structure. In rapidly changing national and global business environment, it has become necessary that regulation of corporate entities is in tune with the emerging economic trends, encourage good corporate governance and enable protection of the interests of the investors and other stakeholders. Further, due to continuous increase in the complexities of business operation, the forms of corporate organizations are constantly changing.
Legal structures are driven by compliance and is used for external purposes. They are generally mandatory for all businesses. Banks, investors, customers, suppliers, lenders and regulators use these business structures to make contacts, approve loans, lines of credits and to make sure you are following regulatory requirements.
When you are just starting out you may not worry too much about the formal decision making process in your business. But, as your business grows issues about who has the authority to make what decisions could undercut your ability to make deals or grow as quickly as you want to. It is even more important to make sure the lines of authority are clear when multiple people own the business. Different business structures allow for different types of decision-making processes and lines of authority. If you want to avoid a legal battle in the future over who is in charge of your business, you have to choose the right business entity. You will also want to make sure those details are spelled out in any legal formation documents drafted by your business lawyer.
When choosing a business entity you are also committing to doing what is needed to maintain the legal status of your business. Different types of companies have different types of compliance burdens. The simplest structure is the sole proprietorship, which usually involves just one individual who owns and operates the enterprise. If your business will be owned and operated by several individuals, you'll want to take a look at structuring your business as a partnership. The corporate structure is more complex and expensive than most other business structures. A corporation is an independent legal entity, separate from its owners, and as such, it requires complying with more regulations and tax requirements.
The company defines its operational structures to assign roles and responsibilities and fix accountability at various levels where actual business activities take place. These levels are used to divide the control of economic resources and operational processes in a business. People at these operating levels have a duty to maximize the use of scarce resources, improve processes, and account for their performance. These levels are known as operating units and used to record and report financial/other information that is not legally required, but that is used for internal control.
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.
There are two commonly used methods of accounting - Cash Basis and the Accruals Basis. Understand the difference between accruals and reversals. Recap the earlier discussion we had on accruals and reversals and see the comparison between these two different but related accounting concepts. Understand how the action of accruing results in reversals subsequently in the accounting cycle.
GL - Recurring Journal Entries
A “Recurring Journal” is a journal that needs to be repeated and processed periodically. Recurring Entries are business transactions that are repeated regularly, such as fixed rent or insurance to be paid every month. Learn the various methods that can be used to generate recurring journals. See some examples and explore the generic process to create recurring journals in any automated system.
Different Types of Organizational Structures
Modern business organizations run multiple product and service lines, operate globally, leverage large number of registered legal entities, and operate through complex matrix relationships. To stay competitive in the current global business environment, they must often develop highly diverse and complex organizational structures that cross international borders.
Understand what we mean by GAAP to STAT adjustments. This article discusses the different standards that are used for multiple representations of the financial results for global organizations. Understand the meaning of US GAAP, Local GAAP, STAT, IFRS, and STAT. Finally, understand why accounting differences arise and how they are adjusted for different financial representations.
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.
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.
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.
Prepayments and Prepaid Expenses
Prepayments are the payment of a bill, operating expense, or non-operating expense that settle an account before it becomes due. Learn the concept of prepaid expenses. Understand the accounting treatment for prepaid expenses. Understand the concept by looking at some practical examples and finally learn the adjusting entry for these expenses.
Trial Balance in General Ledger
One of the greatest benefits of using a double-entry accounting system is the capability to generate a trial balance. What do we mean by trial balance? As the name suggests a trial balance is a report that must have its debits equals to credits. Understand the importance of trial balance and why it is balanced. Learn how it is prepared and in which format.
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