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.
In this article, we will explain the general Ledger journal processing flow from entering journals to running the final financial reports. Understand the generic general ledger process flow as it happens in automated ERP systems. The accounting cycle explains the flow of converting raw accounting data to financial information whereas general ledger process flow explains how journals flow in the system.
In some of the ERP tools, there are more than 12 accounting periods in a financial year. This article discusses the concept of accounting calendar and accounting periods. Learn why different companies have different accounting periods. Understand some of the commonly used periods across different organizations and the definition & use of an adjustment period.
GL - Review & Approve Journals
Review and Approval mechanisms ensure that the accounting transaction is reasonable, necessary, and comply with applicable policies. Understand why we need review and approval processes, what are they, and how they are performed in automated general ledger systems. Learn the benefits of having journal approval mechanisms in place.
Divisional Organizational Structures
The divisional structure or product structure consists of self-contained divisions. A division is a collection of functions which produce a product. It also utilizes a plan to compete and operate as a separate business or profit center. Divisional structure is based on external or internal parameters like product /customer segment/ geographical location etc.
In this article we will help you understand the double-entry accounting system and state the accounting equation and define each element of the equation. Then we will describe and illustrate how business transactions can be recorded in terms of the resulting change in the elements of the accounting equation.
GL - Accrued / Unbilled Revenue
Accrued revenues (also called accrued assets) are revenues already earned but not yet paid by the customer or posted to the general ledger. Understand what we mean by the terms accrued revenue, accrued assets, and unbilled revenue. Explore the business conditions that require recognition of accrued revenue in the books of accounts and some industries where this practice is prevalent.
Concept of Representative Office
A representative office is the easiest option for a company planning to start its operations in a foreign country. The company need not incorporate a separate legal entity nor trigger corporate income tax, as long as the activities are limited in nature.
Multitude of these legal and operational structures clubbed with accounting and reporting needs give rise to many reporting dimensions at which the organization may want to track or report its operational metrics and financial results. This is where business dimensions play a vital role.
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.
Functional Organizational Structures
A functional organizational structure is a structure that consists of activities such as coordination, supervision and task allocation. The organizational structure determines how the organization performs or operates. The term organizational structure refers to how the people in an organization are grouped and to whom they report.
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