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.
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.
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.
A Company (also called corporation) may be understood as an association of persons in which money is contributed by them, to carry on some business or undertaking. Persons who contribute the money are called the shareholders or the members of the company. A corporation is an artificial being, invisible, intangible and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties which the charter of its creation confers upon it.
In this article, we explain some commonly used subsidiary ledgers like accounts receivable subsidiary ledger, accounts payable subsidiary ledger or creditors' subsidiary ledger, inventory subsidiary ledger, fixed assets subsidiary ledger, projects subsidiary ledger, work in progress subsidiary ledger, and cash receipts or payments subsidiary ledger.
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.
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.
Business Metrics for Management Reporting
Business metric is a quantifiable measure of an organization's behavior, activities, and performance used to access the status of the targeted business process. Traditionally many metrics were finance based, inwardly focusing on the performance of the organization. Businesses can use various metrics available to monitor, evaluate, and improve their performance across any of the focus areas like sales, sourcing, IT or operations.
Explore the concept of journal reversals and understand the business scenarios in which users may need to reverse the accounting entries that have been already entered into the system. Understand the common sources of errors resulting in the reversal of entries and learn how to correct them. Discuss the reversal of adjustment entries and the reversal functionalities in ERPs.
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.
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.
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