BUSINESS ORGANISATION THE STRUCTURE OF AN ORGANISATION The arrangement of an organisation will depend upon > The size of the enterprise > The type of work it does > The number of employees > Whether it is involved in exporting its goods or services ‘The structure can be shown on an organisational chart which defines the main parts of the enterprise, names of individuals in key roles, line structure (who reports to whom), level, of authority and responsibility, supervisory structure and lines of communication, Anorganisation chart iy a diagram of the formal relationshipy and communication flows between positions within the organisation: Businesses may be organised in different ways. Some of the more common structures include functional departmentation, geographical departmentation and product / brand departmentation, Functional Departmentation The business is divided into departments with persons doing similar jobs being grouped together. It is suitable for organisations with a single product or group of similar products. Geographical Departmentation The organisation is structured according to their geographical region or area. A regional manager will oversee all operations within their region but still has to report to head office which retains some authority. The business can offer a universal product line or service or it can tailor its operations to the region’s culture and purchasing habits. Product / Brand Departmentation The business is structured on the basis of the products it sells. A divisional manager will be assigned responsibility for a product line. Some funetions remain, This structure is suitable for supermarkets and department stores. Advantages of organisational charts 1. Itis transparent and predictable. It helps to understand what should happen in the organisation, 2. Itprovides a snapshot of the hierarchy in an organisation. 3. It shows who is in charge of what and who reports to whom. Limitations of organisational charts 1. They are static and inflexible. Organisations change and these changes may not be reflected in the organisational chart. 2. It does not help much to understand what occurs in the informal organisation. It cannot cope with changing boundaries due to outsourcing, strategic alliances, ete.THE FUNCTIONS OF AN OFFICE An office supports a business by recording, processing, storing and providing information. Each organisation will have its own procedures, rules and systems but will all have the same type of work being done by their office staff, that is, administrative assistants and clerical workers. Information is Provided to other organisations. This can be in different forms including invoices, price lists, quotations and financial information. Received and processed from other organisations. Recorded. This can include payments made and received, wages paid to employees and debts owed to and by the organisation. Provided for internal use. Example ~ facts and figures for control purposes. Kept for future reference. CENTRALISED OFFICE FUNCTIONS A centralised office system is one where the office procedures are done at one point or location within the organisation, The responsibilities of the manager of this section will include 1 Advising and assisting departmental managers in the planning of clerical activities, including equipment, methods of work, supplies, personnel and layout of office accommodations. Maintaining general office services (mail delivery and collection, central filing activities, typing pool, etc.) Reviewing office machinery and equipment with a view to its maintenance and replacement ADVANTAGES vYVVYVY Systems and procedures are standardised throughout the organisation, facilitating control. Specialist staff can be employed and trained with well defined career paths. Expensive machinery and equipment can be purchased and used economically. There is less likelihood of backlogs during busy periods. Consultations and communications are easier and personal contact is possible. Itis usually more economical in terms of space and costs. Head office is in a better position to know what is going on. Avoids duplication of services. DISADVANTAGES: vVvVVY Office systems that may suit one department may not be suitable for another. There is less scope for job enrichment and a lack of variety may mean the staff may become bored. Rigid procedures may cause difficulties in coping with emergency jobs. There is an increase in the amount of paperwork and form filling. Local offices may have to wait for certain tasks to be carried. Reliance on head office to make decisions. Head office may take decisions although they are unfamiliar with the local conditions.ARGUMENTS FOR CENTRALISATION vvYY Decisions will be easier to coordinate since they will be taken at one location. Senior managers will be able to take a wider view of the problems and consequences for the whole rather than just a specific part of the organisation. Senior managers can ensure equitable treatment and allocation of resources to the various departments. Decisions should be better given senior managers’ skill and experience. Management costs may be lower since less managers will be needed. Standardisation of policies, procedures and documentation. Quicker decisions can be taken in emergencies situations since managers will have the necessary authority to make the decisions rather than having to seek authorisation. DECENTRALISED OFFICE FUNCTIONS Each department or division works independently of each other, each having an office dedicated to fulfilling their needs, ADVANTAGES: vvvv v Clerical staff will be able to spot errors and obtain answers more easily since they understand the implications of the documents. Better service is given to the department. Department filing of documents will aid in promptness of retrieval when needed. Decisions will be made by persons with knowledge of the local conditions. Local managers will be more motivated since they will have more authority and autonomy. They will not be required to seek head office approval Given that managers have some autonomy it will help in developing managerial capabilities. DISADVANTAGES vvy Duplication of services. Extra information processing. Decisions taken may be beneficial to the local office but not beneficial to the organisation as a whole. Increase in costs since there will be the need to purchase / lease more equipment and accommodations. Different systems and procedures may give rise to difficulties in gathering informationARGUMENTS FOR DECENTRALISATION > Avoids over burdening senior managers. > Improves motivation of junior managers since they are given the opportunity to make decisions for their local offices. > Decisions may be better since local conditions are factored into the decision making. > Faster decisions and reaction times to changing local conditions since the local managers have the authority to take the necessary actions without head office approval. } Assists in preparing junior mangers for the transition from functional to general managers. > More accountability since areas of responsibilities can be assigned. > Technology will allow head office to keep informed about the operations of local offices and to give their input if necessary. POLICY MANUAL ‘A manual of best practice / procedures will help the office staff in their work since it indicates what is to be done, when, where and how. They also incorporate details of the interaction of procedures within the system as a whole. Procedures represent the summation of a series of operations necessary to perform a task associated with the receipt, recording, arrangement, storage, security and communication of information. The manual is aimed at ensuring that the organisation's objectives are attained and that there is effective control over its transactions. However strict adherence to the rules can create inflexibility and an inability to deal with unusual situations. TYPES OF ACCOUNTING FINANCIAL ACCOUNTING Financial accounting deals with the classification and recording of monetary transactions and the presentation and interpretation of the results of those transactions in order to assess performance over a period and the financial position at a given date. It is a record of the transactions between a business and its customers, employees and owners, and is, presented in a Statement of Financial Position and an Income Statement. COST ACCOUNTING Cost accounting is concerned with the establishment of budgets, standard costs and actual costs of operations, processes, activities or products, and the analysis of variances, profitability or the social use of funds. It allows management to identify inefficiencies and wastage, determine which activities are profitable, analyse movements in profits, set selling prices, value stock, develop budgets and standards, ete. MANAGEMENT ACCOUNTING Management accounting is an integral part of management concerned with identifying, presenting and interpreting information used for formulating strategy, planning and control, decision making, and optimising the use of resources.The differences between Cost and Management Accounts and Financial Accounts are Financial Accounts ‘Cost & Management Accounts Legal Limited Companies are required | Records are not mandatory Requirements | by law to prepare them Record A necessity Must be justified Keeping costs, Purpose To record financial performance | To aid planning, control and ina period and the financial decision making. position at the end of the period. Nature of | Financial (monetary values) Financial and non financial Information Time Period |Mainly an historical record Concerned with the future, the present and the past. Formats Information must be presented | Information should be presented in accordance with legal and according to management needs, accounting requirements the key criterion being relevance Users External and internal Internal Focus The business as a whole Specific areas within the busines: and the business as a whole COST BOOKKEEPING A business can keep its cost accounting records separately or as a part of the overall accounting system. The information in the accounting system will be gathered from the books of prime entry, that is, where the business’ transactions will be recorded for the very first time. Interlocking accounting systems are systems in which the cost accounts (ledger) are distinct from the financial accounts (ledger), the two sets of accounts being kept continuously in agreement by the use of control accounts. In other words, the financial ledger will have a control account which will be used to record all items that will be transferred to the cost ledger and vice versa, The problems with this type of system are that they are time consuming and costly to maintain but they will allow the business greater access to cost accounting information.Integrated accounting systems are systems where a set of accounts in which the cost accounts and financial accounts are combined into one using the same data for all accounting purposes. The system tends to the less costly than interlocking systems but problems do arise since one set of ledgers are used to meet different needs. Problems include that the use of jargon may limit the use of the information for those managers who are unfamiliar with the accounting terms. Cost accounting managers will require non-financial information which cannot be provided and they may also have difficulties in establishing the relevance of certain costs and the cumulative effects of previous decisions. COMPUTERISED ACCOUNTING SYSTEMS A fully computerised accounting system will include a general ledger, a sales ledger, a purchases ledger, a cash and petty cash book, inventory records and a payroll programme. Computerisation allows for quicker and more accurate entries. The process is made up of three stages: input from source documents, processing and output which can be in the form of reports. Entry of data can be batch or on line. Batch processing refers to the accumulation and storage of transactions for a period of time, after which they will all be processed at regular intervals, The advantage of this system is greater control since the batches are numbered so that any missing records are easier to locate once the batch number is identified. However, the system cannot be used where up to date information is required so it is more appropriate for routine tasks. Real time, on line processing involves the immediate inputting and processing of transactions where the machine is under the direct control of the central processor. This results in up to date information. The main effects of computerising the accounting system are: 1. Routine processing. Processing of routine transactions can be done in bigger volumes, at greater speed and with greater accuracy 2. Paperless office. The handling and storing of data electronically will reduce the need to use and store paper. 3. Information access. Managers are likely to have access to more accurate, reliable and up to date information. 4, Planning activities. The ready access of accurate, reliable data should allow a more through level of planning and enable the use of spreadsheets to be integrated into the planning process for budgeting purposes. 5. Control. The need for reconciliations will be minimised and desirable reconciliations can be fully automated. Information for control purposes will be readily available and can be integrated into the accounting system. 6. Decision making. Decision support system, sensitivity models can be integrated giving management a greater amount of decision making information. 7. Communication and sharing of information. This can be supported by networking, locally and allowing local and head office access to centralised data. 8. Motivation. It takes away most of the mundane aspects of work and allows ‘employees to spend more time on analysing and using the information rather than processing.Most computerised accounting systems are integrated systems which means that a single entry will update all relevant records. The advantages of an integrated accounting system includes: > Data needs to be entered once to update all relevant records. > The system is more efficient since there is no need to quit one application to access another. > Possible human error in forgetting to update a relevant record id reduced. > The system is easier for users to understand, since all components of the package will have similar screen layouts and functions. This will reduce the training time required and the incidence of user errors. > Integration of the records of the different departments will mean that information can be more accurate and up to data, MANAGEMENT INFORMATION DATA VS INFORMATION: Data refers to raw facts and figures which have been collected but not yet processed. Information is data that has been processed in a way that makes it meaningful to the user. It is anything that is communicated. Useful management information allows managers to make informed decisions. A manager can include anyone involved in the decision making, planning and controlling of an organisation. Managers will require information for > Decision making Decision making involves the selection of an alternative course of action. It can be long term decisions about the future direction of the business or short term decisions about the day to day running of the organisation. > Planning Managers will make detailed plans about production, sales, number and allocation of employees, costs, etc. These plans will be expressed as budgets. > Control of the business Regular comparisons of planned to actual results will allow managers to identify where control action is required. The action may be to bring performance in line with budgets or to revise budgets if this is not possible,For management to carry out the above tasks efficiently the information they receive, whether it is from an internal or extemal, primary or secondary, routine or non-routine source, it must meet certain criteria. Internal information is information that is generated internally by the business. The sources of internal information include the accounting system, the payroll system, the production department and the employees. External information is information that is gathered from outside of the organisation. The main sources include the govemment, business contacts, trade associations and journals, financial press, business press and general media, the internet, advice or information bureaux, consultancies, specific reference works, libraries and information services, and electronic sources such as television, and radio. Primary data is gathered for a specific purpose, whereas, secondary data is not originally gathered for a single purpose but may be used in a variety of ways. The qualities of good information are ‘Comprehensibility The information should be understood by the user. To ensure that this occurs the appropriate presentation method, language and communication channel has to be selected. The volume of the information provided should be suitable to its use When too much o too little information is provided it will affect the users’ abi to understand the situation under review Objectivity Free from ias. The information has to give an accurate picture of the situation. Relevance Information must be relevant to the purpose for which the manager wants to use it, All information provided should have a use, if it can be ignored by the user then it should not have been provided. Unnecessary details should not be provided since it will cost the organisation more than is necessary. Reliability The user must be able to use the information without any reservations about its accuracy. Accuracy should be sufficient for the use of the information. Entirety / completeness All information that is needed to give the user a complete picture of the situation should be available to the user. Information needs to be complete but not excessive, Cost effectiveness The benefits to be derived from the use of the information must outweigh the costs incurred in obtaining the information. The benefits results from the actions taken because the information was available.Timeliness The information must be available when it is needed so that the decision taken will be an informed one. Communicated Information must be communicated to all parties that need it via an appropriate channel. A channel refers to the way in which the information is passed from one party to another (verbally, e-mail, formal or informal report, etc).1 In the firm in which you work, budgetary control reports are produced each month, and are discussed at a monthly control meeting in the third week of the following month, Which one of the following four practices should be employed for the distribution of reports? A Arreport should be delivered to the recipients no later than the start of the meeting at which it will be discussed. B The report should be delivered in digital form rather than in printed form, for security purposes, C Recipients of the report should not be informed about the identity of all the other recipients, for security reasons. D_ Regular control reports should be kept short, to make therh easier to read and understand. Why is management information valuable for decision-making? A Itenables management to make the correct decision. B__Ithelps management to reach a more informed decision, CC Itcan be used to judge whether the decision taken by management was correct D__Itenables managers to make decisions more quickly. Which of the following items would be included In the financial accounting system but not in the management accounting system? A Sales commissions payable to sales representatives B_ Costs of repairs to the office air conditioning system C Profits paid out in dividends to the business owners D Direct labour costs Which of the following qualities is not necessarily a quality of good information? A It should be relevant, Bit should be understandable, C It should be worth more than it costs to produce. D It should be available quickly Identify whether the following statements about management accounts are true or false, Tue False (2) They must be prepared by law (b) They are mainly historical records () They are prepared for internal use only40 1 Information can be described as: A Data that consists of facts and statisties before they have been processed Data that consists of numbers, letters, symbols, events and transactions which have been recorded but not yet processed into a form that is suitable for making decisions, Facts that have been summarised but not yet processed into a form that is suitable for making decisions, Data that has been processed in such a way that it has a meaning to the person who receives it, who may then use it to improve the quality of decision-making. Which of the following is not a purpose of management information in a company? A B c D To provide records of current and actual performance To compare actual performance with planned performance To help management with decision-making To inform customers about the company’s products Which of the following is not an example of primary data? A 8 c D ‘An employee survey to determine views on canteen food A customer survey to measure product availability Personnel records used to assess training needs A Local Authority survey to assess parking needs Which of the following employees in an organisation is the finance manager unlikely to have responsibility for? A B c D Cost accountant Chief cashier Wages clerk ‘Transport clerk Which of the following are all qualities of good management information? A B c D Digital, brief, relevant Reliable, consistent, timely Secure, accurate, printed Accessible, universal, complete ‘Which one of the following is always a quality of good information? Immediate availability Availability to everyone Reliable Technically accurate12. Which one of the following statements is correct? ‘A Data is held on computer in digital form whereas information is in a form that is readable to human beings. B Information is obtained by processing data Data and information mean the same thing. D Data consists of numerical or statistical items of information. 43. Which of the following items of information might be produced by a management accounting ? A Income tax deducted from employees’ wages and salaries B_ Amounts of money owed to suppliers CC Current bank balance D_ Profitability of product items 44. Which of the following is an example of external information that could be used in a management accounting system? A Consumer price index statisties B Price list for the products sold by the business Production volume achieved by the production department D Discounts given to customers 15 Which of the following is not management accounting information? A Sales budget Variance report B C Payroll report D Profitability report