Please enable JavaScript.

Coggle requires JavaScript to display documents.

Module 3: Accounting and reporting - Coggle Diagram

- - - - For example, let's say you own a small business that sells goods to customers. You might create a customer account called "Sales to AB Co" to keep track of all the sales you make to the company named AB Co. This account would contain all the information about the transactions you make with AB Co, such as the date of the sale, the amount of the sale, and any other relevant details.
  - - - For example, you might have a receivables ledger, which contains all the customer accounts that you use to track sales you've made on credit. In this ledger, you would have the "Sales to AB Co" account, along with all your other customer accounts. The receivables ledger helps you keep track of all the money that your customers owe you.
  - - - Customer accounts
    - - Suppplier account
    - - such as wages and salaries, property rental costs, telephone charges, the cost of interest on loans, electricity charges, and so on.
    - - nclude land and buildings, machinery and equipment, motor vehicles, inventory and cash.
    - - include loans from a bank and the amount owed to all suppliers in total.
    - - to record investment in the organisation by the owner(s), as well as any net income earned from this investment.
- - - - For example, if a company regularly ships products to a customer, they can use the customer master record to store the customer's shipping address so that they don't need to manually enter it each time they ship a product.
    - - For example, if a company has a preferred courier that they use to ship products, they can use the customer master record to store the customer's preferred courier so that they don't need to manually enter this information each time they ship a product.
    - - For example, if a company needs to reconcile their financial records, they can use the customer master record to verify the customer's account balance and make any necessary adjustments.
    - - For example, if a customer fails to pay their bill on time, the company can use the customer master record to generate a late payment reminder and follow up with the customer to collect the outstanding balance.
      - Dunning is the process of communicating with customers to make sure that they pay their bills on time. This is done to collect money owed to the organization.
        Sometimes, the organization and the customer have an automatic system set up for paying invoices, like electronic data interchange, and no communication is needed. However, if there is a problem with the invoice or payment is not received on time, the organization will need to communicate with the customer to sort out the issue. For example, if the customer has only made a partial payment, the organization may need to ask for the rest of the payment to be made.
      - If the customer is new, there may be incorrect information on their customer master record, like their bank information. The organization will need to communicate with the customer to make sure that all the information is correct so that payments can be made without any issues.
  - - - However, sometimes there are problems that can arise. For example, the quantity of goods received may be different from what was ordered, the quality of the goods may not be up to standard, the goods may have been delivered too early or too late causing problems, or the invoice amount may be different from what was agreed upon in the contract. These issues may need to be addressed before payment can be made.
  - - - If there are any changes or disputes, a new invoice may need to be issued, which requires internal communication with the sales function. The invoices are recorded in a receivables ledger, and the data is posted to the general ledger for management reporting.
  - - - Firstly, Timeliness
        
        enquiries relating to invoices should be dealt with in a timely and professional manner. If a customer contacts the department with a question or concern, it should be addressed as quickly as possible.
      - Secondly, Clear communication
        
        communication should be clear and transparent. If the department needs to seek information from other departments or individuals, the customer should be kept informed of what is happening and what actions will be taken. Promises should not be made if they cannot be kept.
      - Finally,Documented trail
        
        it is important to keep a documented trail of all communication related to a customer account. This is especially important in case of a dispute, which could result in delays in payment or even litigation. By keeping a record of all conversations and interactions with the customer, the department can ensure that there is a clear trail to follow if necessary.
      - For example, if a customer calls to dispute an invoice, the accounts receivable representative should listen carefully, ask questions to understand the issue, and then take action to resolve it as quickly as possible. If they need to consult with another department or individual, they should inform the customer of what they are doing and provide an estimate of when they can expect a resolution. They should also document the conversation and any actions taken in case the issue arises again in the future.
  - - - Example: If a company has a standard process for following up on overdue invoices, it can be applied consistently across all customers, making it easier to manage and monitor.
    - - Example: If the sales department has insights into why a particular customer is not paying their invoices on time, they can work with accounts receivable to find a solution that addresses the root cause of the issue.
    - - Example: A factoring service allows a company to sell its invoices to a bank at a discount in exchange for immediate payment. GBS can offer a similar service, but at a lower cost.
    - - Example: If a company needs expertise in managing international accounts receivable, they can use GBS services to access staff with that expertise, instead of hiring and training staff themselves.
    - - Example: If a company is using GBS services for its accounts receivable function, it can be confident that the function is being managed by experienced professionals who have a track record of success.
- - - - Let's say you work for a company that needs to purchase office supplies. The first step is to identify the need for those supplies. Maybe someone in the office notices that the printer ink is running low and we need more paper.
        
        identifying purchase needs
        
        procurement processes are a series of steps that a company takes to acquire goods or services from suppliers. In order to start this process, a company needs to identify its needs and decide whether to provide the resources internally or buy them from outside sources.
        
        some examples of how this works:
        
        Training:
        
        Let's say a company has a training department that wants to offer a course on a specific topic. The department needs to decide whether to design and deliver the course themselves or engage the services of an outside provider. If the department decides to create the course internally, they will need to allocate resources and budget accordingly. If they decide to engage an outside provider, they will need to research potential providers and negotiate a contract.
        
        Software:
        
        The IT/IS function of a company may need to develop a new software program. They need to decide whether to build the program internally, hire a specialist to design the program, or buy a pre-existing software package that can be customized. If they decide to build the program internally, they will need to allocate resources and budget for the project. If they decide to hire a specialist or buy a pre-existing package, they will need to research potential providers and negotiate a contract.
        
        Raw Materials:
        
        When it comes to sourcing raw materials, a company has several options. They may choose to use a single supplier, have a supply portfolio of more than one supplier, use an agency to delegate sourcing, or use a combination of these methods. For example, a company that produces furniture may decide to use a single supplier for its wood, or it may have a portfolio of suppliers for different types of wood. They may also use an agency to help source materials or combine these methods to ensure they have a reliable and cost-effective supply chain.
      - The next step is to plan and document the procurement needs by creating a purchase order. This is a document that specifies the items to be purchased, the quantity, the price, and the delivery date. The purchase order is then sent to the supplier, who confirms the order.
      - Once the supplier confirms the order, they will deliver the goods to your company. When you receive the goods, you need to check that everything is in order and matches what you ordered. If everything is good, then you can proceed to process the invoice.
      - The invoice is a document that the supplier sends to your company to request payment for the goods or services delivered. You need to ensure that the invoice matches the purchase order and that the price is correct. If everything is in order, you can then proceed to release the payment to the supplier.
      - Finally, the process ends with reporting the entire transaction, which involves recording the purchase, delivery, invoice, and payment in your company's accounting system.
  - - - explanations and examples of each strategy
        
        Single source - This strategy involves using only one supplier for a particular item or service. The benefit of this is that the organization can negotiate better prices due to the larger volume of purchases. However, the downside is that if the supplier goes out of business or has quality or delivery problems, the organization may have no backup plan.
        
        For example, if a restaurant only sources its seafood from one supplier, and that supplier has a shortage or quality issue, the restaurant may have to temporarily remove seafood from the menu.
        
        advantage of using a single supplier or agent is that it allows for standardization of the process, meaning that the systems used by the supplier or agent can interact with the company's systems seamlessly. However, if the company needs to switch to a different supplier or agent, they may need to make significant changes to their process.
        
        For example, if a company chooses to use a single supplier for a particular product, they can standardize the purchasing process and easily integrate it with their own systems. However, if that supplier goes out of business, the company may need to find a new supplier and adjust their process accordingly.
        
        Supplier portfolio - This strategy involves using multiple suppliers for a particular item or service. This reduces the risk of relying on just one supplier, but can also mean losing out on potential volume discounts.
        
        For example, a clothing retailer might source their clothing from multiple manufacturers in different countries to ensure they have a diverse range of suppliers.
        
        If a company uses a portfolio of suppliers, they have the flexibility to switch between suppliers more easily. However, accommodating changes in the range of suppliers can have a significant impact on the company's process.
        
        if a company uses a portfolio of suppliers, they can switch between suppliers more easily, but they may need to make adjustments to their process each time they switch.
        
        Delegated sourcing - This strategy involves hiring a third-party agent to negotiate contracts with suppliers on behalf of the organization. This is useful if the organization lacks the expertise to negotiate complex contracts or wants to save time by outsourcing the process.
        
        For example, a small business may hire a procurement consultant to negotiate contracts with suppliers on their behalf.
        
        Parallel sourcing - This strategy involves using a combination of approaches.
        
        For example, an organization may have a portfolio of suppliers for most items, but may choose to use online purchasing platforms for specific, unexpected needs. For example, a hospital may have a contract with a medical equipment supplier for most of their needs, but may use an online platform to quickly source a specific item that is needed urgently.
        
        allows for the greatest flexibility, but also the least opportunity for standardization. This approach may be useful in rapidly changing markets where flexibility is crucial.
  - - - For example, an organization may have a policy that allows employees of a certain grade to travel in a particular class of air travel. Similarly, they may also specify the maximum amount that an employee can spend on hotel accommodation, meals, and other related expenses.
- - - - which is important in businesses where a parent company owns subsidiaries
      - The system used should be capable of identifying and aggregating transactions between companies, which can help in minimizing the administrative burden and reducing the possibility of double-counting
    - - which can benefit from buying economies and vertical integration
      - SSO and GBS come into play when services are centralized, which can help in the accurate processing and reporting of intercompany transactions.
      - A GBS enables the accounting process across the whole group to be performed within a single system. Each transaction can be posted once, and this results in cash, inventory, payables and receivables being accurately recorded and reported. Duplication is eliminated.
  - - - Fixed assets are non-current assets that include property, plant and machinery, fixtures, and fittings. These assets are rarely traded unless the organization decides to divest them. Fair value accounting requires that revaluations should be made when there is a material difference between the historic value of the asset and its current value.
    - - which is used to monitor the cash position of the organization and ensure sufficient liquidity to meet short-term obligations as they fall due. Liquidity refers to cash, deposits withdrawable on demand or short notice, and near-cash assets that can readily be converted into cash.
    - - When a company owns assets like buildings or equipment, the value of these assets can change over time. For example, the value of a building may increase if the area around it becomes more desirable, or it may decrease if the building becomes outdated. Fair value accounting requires that the company update the value of these assets to reflect their current value, rather than just keeping the original purchase price.
        
        If an asset has increased in value, the difference between its original purchase price and its new, higher value is called a "surplus." This surplus is not the same as a profit, though, because it's not money that the company has earned from selling goods or services. Instead, it's just an increase in the value of something the company already owns. To avoid distorting the company's profits, this surplus is usually shown as a separate account called a "revaluation reserve." This reserve increases the overall value of the company (also called "shareholders' funds" or "net worth").
  - - - For example, when a company receives payments by check, they need to check that the amounts shown as credited in the bank statement match with the actual payments received. There may be differences due to various reasons, such as checks taking time to clear or errors made by the bank or the company.
  - - - means you record transactions when actual money is received or paid out
      - is usually simpler and more appropriate for smaller businesses
    - - accruals basis means you record transactions when they happen, regardless of whether the money has actually changed hands.
      - For example, if you run a business and you receive an invoice from a supplier for goods or services, with the accruals basis you would record that expense in your accounts even if you haven't paid the invoice yet. This is because you owe the supplier money, and that debt is a liability for your business.
      - larger businesses are often required to use the accruals basis to give a more accurate picture of their financial position.
  - - - Internal analysis
        
        involves looking at the company's financial statements, such as its balance sheet and income statement, to understand its current financial position. This includes examining assets, such as property and equipment, and liabilities, such as debts and loans. Cash flow and trends in income and expenses are also considered.
        
        For example, if a company has a lot of debt and not enough assets to cover it, they may need to make changes to their budget to ensure they can meet their debt payments.
      - External analysis
        
        involves looking at factors outside of the company, such as the market, economic trends, and competition. This requires using data that is not generated by the company, and may include qualitative information, such as consumer trends and preferences.
        
        For example, a company may examine data on consumer trends and preferences to decide whether to invest in a new product line or to adjust their pricing strategy to remain competitive.
    - - Balance sheet and cashflow analysis: This involves analyzing the organization's sources of funding and asset structure, including working capital requirements, liquidity needs, and investments in fixed assets.
        
        Example: An organization that wants to expand its operations may use financial modeling to identify potential sources of funding, such as share capital or loan capital, and forecast future cash flows.
      - Profit or loss account analysis: This involves forecasting future income and operating costs, and analyzing gross and net profit margins.
        
        Example: An organization may use financial modeling to forecast future revenue and expenses, and identify areas where it can reduce costs to improve its profit margins.
      - Consolidation: This involves considering the future plans for the enterprise as a whole and each part of the business.
        
        Example: A multinational corporation may use financial modeling to analyze the financial performance of each of its subsidiaries and identify areas where it can improve efficiency and profitability.
      - Budgets: Financial planning enables budgets to be prepared, which form the basis of functional plans.
        
        Example: An organization may use financial modeling to create a budget for its marketing and sales department, which includes projected revenue and expenses.
      - Corporate finance: This involves considering the alternative costs of funding, such as rights issues and potential sources of loan capital.
        
        Example: An organization may use financial modeling to analyze the costs and benefits of different funding options, such as issuing new shares or taking out a loan.
      - Sensitivity analysis: This involves stress-testing the future plan by predicting the effects of changes in significant variables.
        
        Example: An organization may use financial modeling to analyze the potential impact of changes in interest rates or exchange rates on its financial performance.
      - Investment appraisal: This involves using discounted cashflow analysis to model the cash flows relevant to investments and the opportunity costs arising from them.
        
        Example: An organization may use financial modeling to analyze the potential return on investment for a new product or service.
      - Management of working capital: This involves identifying potential bottlenecks in the flow of resources through the business, including sourcing of raw materials, manufacturing, and cash management.
        
        Example: An organization may use financial modeling to identify potential cash flow problems and develop strategies to improve its management of working capital.
- - - - They may do this by using financial contracts called derivatives, which can help protect the organization against unexpected changes in the value of investments or currency exchange rates.
    - - such as buying goods or services from another country. They make sure that the organization's money is converted to the right currency and that the exchange rate doesn't cause the organization to lose money.
- - - - For example, a coffee shop's upstream supply chain would involve interactions with the coffee bean supplier, the milk supplier, and the sugar supplier.
  - - - For example, the coffee shop's downstream supply chain would involve interactions with the delivery company that transports the coffee to the shop, as well as the customers who purchase the coffee.
  - - - For example, let's say a company produces shirts. The supply chain management process would involve managing the raw material suppliers of cotton, managing the manufacturing process to turn the cotton into shirts, managing the distribution of the shirts to retail stores, and managing the sale of the shirts to customers.
        With the rise of technology, supply chain management has become more complex, especially for companies with multiple channels to market. For example, a supermarket chain that manages both physical stores and an online store would need to use sophisticated systems to manage their inventory, order processing, and delivery logistics.
- - - - includes permanent information on each employee,
        
        such as their name, address, and tax number
    - - changes for each payment period and includes gross pay, deductions, and net pay.
- - - - For example, a company may have a system that automatically generates reports on sales figures or inventory levels.
    - - For example, a company may have a policy that all expenses must be approved by a manager before they are reimbursed. The business and process controls would ensure that this policy is followed and any deviations are reported.
    - - For example, a bank teller may manually count the cash in their drawer at the end of each shift to ensure that the amount of money matches the records.
    - - For example, a company may have a policy that all emails sent by employees are automatically scanned for sensitive information to prevent any data breaches.
    - - For example, a company may have a policy that all employees must take a mandatory vacation to prevent burnout. This is a non-discretionary control that must be implemented by all employees, whereas a discretionary control may involve a manager's decision to approve a large purchase.
  - - - For example, a common type of internal check is the use of check digits in account numbers.
      - A check digit is a number added to the end of an account number that is generated by a specific algorithm. This check digit helps to identify if there were any errors in data entry. If the check digit does not match the calculated value, it means that there is an error in the account number, and the system will flag it for correction.
      - This is just one example of how an internal check can be used to prevent errors and ensure accuracy in an organization's operations.
  - - - is to review the financial statements and determine whether they present a true and fair view of the company's financial position. The auditor will also ensure that the financial statements are prepared in accordance with applicable laws and accounting standards
      - auditors have the right to access any information relevant to their work and can seek explanations from any staff regarding any questions necessary to provide their professional opinion. In some countries, it is a criminal offence to deny access to information or to provide false information to auditors.