Strategic decisions should always be made with great care, based on both historical and up-to-date financial information. You decide that all head-office costs should be allocated to the divisions, because you determine that the corporate costs are incurred primarily to support each division’s business activity. Any rock-solid accounting department takes steps to control the accuracy of their financial data and reporting system. Each used a different level in the cost hierarchy. An accounting information system (a management control system) must be in place to allow for divisional assessment. Pacific Crest Group provides vital services to progressive, forward-thinking business owners to create successful strategies for growth and efficiency in their organizations. QuickBooks provides a way for you to set up classes if your company has several offices or categories that you want to track as divisions. You decide to allocate the interest cost to each division, based on the percentage of the total loan proceeds each division received. That being said, the accuracy of a company’s accounting data should never hinge on a particular individual. Headquarters: If these divisions are all part of the same company, then that company is legally responsible for all of the obligations and debts of the divisions. Consider the divisions. Assume your firm took out a loan to finance machines. Your logic is that if the residential refrigerator division got 60 percent of the loan proceeds spent on machines, it should incur 60 percent of the interest cost. Some of the $5,000,000 in corporate cost still needs to be allocated, but you get the idea of how to allocate the costs. This creates a credit on the vendor's account. As a company grows, so do its accounting needs. When a company is making strategic decisions based on an inaccurate budget forecast or a faulty cash-flow statement, the consequences can be huge and can hinder company performance (or even reputation) for some time. Accounting Manager – An accounting manager is responsible for a company’s accounting activities that include maintaining and reporting on both the cost and financial sets of accounts but does not handle or negotiate. 810 5th Avenue, Suite 200 Assume 2,000 machine hours for the year: If a unit of product requires less than 1 machine hour (say, 20 minutes of time — 1/3 of an hour), the interest cost for that product would be $15 ÷ 3, or $5 of interest cost. He also wants you to determine whether the computers have … San Rafael, CA 94901 Some common statutory payments include social security fund and Pay As You Earn (PAYE). A division of your company purchased a large quantity of new desktop. The CEO of the division stops by your office and says, “I have some … If you increase vehicle use (cause), you increase these costs (effect). Having a controller or accountant supervisor overseeing accountants as they move financial data through the accounting cycle, helps to account for human error. Ken Boyd is a former CPA with over 27 years of experience in accounting, education, and financial services. Additionally, out of date financial information can make investing or decision making a risky proposition. Ken is the owner of St. Louis Test Preparation (www.stltest.net). Then write a check to the vendor from Company A using the (Loan to Company B) Account.. Next write a check to Company A from Company B, under the expense tab enter "Accounts Payable", under customer:job in the check enter in the Vendor. More than just record keeping or check writing, a successful accounting department is one that provides the real-time financial information needed to operate in today’s competitive marketplace. You decide to allocate the legal and accounting costs based on percentage of total profit. The system used must have a close bearing on divisional goals and must recognise that some costs of a division will be controllable by its managers and some will not. / Steven Bragg. Say you make a judgment that $2,000,000 in salary and other costs for corporate legal and accounting staff is a facility-sustaining cost, needed to support the business company-wide. A corporate division is a separate operating unit of a business. A successful accounting department is one that operates as quickly as any other department in the company, but also one that provides decision makers with accurate financial data on their business. So you can relate the interest cost of the machines purchased to individual units. Here’s the cost allocation to the residential division: Interest costs and the legal and accounting costs were allocated. You do that using machine hours. No matter the size of the company there are key points that every accounting department has to hit in order to be successful. Division A of a company is currently operating at 50% capacity. For example, combining vehicle repair, vehicle maintenance, and vehicle insurance into one cost pool makes sense. It turns out to be 59 percent (rounded). computers during the current fiscal year. This approach is useful when decision-making should be clustered at the division level to react more quickly to local conditions. Again, your goal is to allocate all costs down to a unit of product. It’s one thing to learn that your plans exceed your budget, but another entirely to learn this through a check bouncing on the technology or service you’re investing in. Your goal is to create cost pools that have the same cause and effect on the cost object. Barbizonlaan 20, 3090 Overijse. If you can’t do that, any costs not allocated to a unit should still be posted to your profit and loss statement.