Key Business and Accounting Concepts

Business Entity Fundamentals

• Entities:
  • Natural person (1 owner)
  • Moral person (+2 owners)
• Source of Capital:
  • Private (individuals)
  • Public (state)
  • Mixed (individuals and state)
  • Domestic (Mexicans/national)
  • Foreign
• Act Developed:
  • Trade
  • Manufacturer
  • Service
• Countries Operate:
  • National
  • Multinational
• Purpose:
  • For-profit
  • Non-profit

Financial Reporting Standards (IFRS)

All entities keep accounting records as measured following Financial Reporting Standards (IFRS).

Accounting Definition

Accounting: Methodical and systematic record of the daily operations of an economic entity.

IFRS Ethics Principles

• Integrity: Honest
• Objectivity: No conflict of interests
• Competition: Update knowledge
• Confidentiality
• Professionalism: Comply with laws

Accounting Information Systems

System: Set of elements interrelated to achieve an objective.

System Components

• Data input
• Processing
• Output

Core Accounting Modules (Trial Ledger)

• Accounts low transaction volume (Translation and bookkeeping)
• Accounts high transaction volume (Bank, sales, inventory, assets)
• Trial Balance
• Financial Reports (Balance Sheet, Income Statement, Cash Flow Statement, Owners' Equity Statement)

External Accounting Modules (Trial Ledger)

• Record All
• Bank
• Accounts Receivable (Acc Rec)
• Inventory (Inv)
• Equipment/Depreciation (Equip/Depre)
• Accounts Payable (Acc Pay)
• Purchases (Purch)
• Payroll

Accounting vs. ERP Systems

• Accounting:
  • Only by managers and accountants
  • Only finance
  • Flexible
  • Easy implementation
  • Affordable
  • Small business
• ERP:
  • By all organization
  • All business functions
  • Rigid
  • Complex
  • High cost
  • Corporation (big)

Inventories Management

Inventory Control Practices

• Good Control:

  • Physical Warehouse Control:

    • Purchases enter as inventory
    • Accept good quality and reject bad
    • Timely and reliable movements

  • Digital Computer Control:

    • Encode and classify
    • Quantity and value (unit cost) of warehouse inputs and outputs
    • Timely and reliable records

Inventory Recording Systems

• Periodic: At month end
• Perpetual/Constant: After every economic event - allows preparation of financial statements and discourages theft or waste

Inventory Valuation Methods

(Determine cost of goods sold and available)

• Specific Cost
• FIFO: First in, first out (e.g., grocery store)
• LIFO: Last in, last out (e.g., stack of metal plates)
• Average: (e.g., large industries)

Cost of Sales (COGS)

Cost to produce goods sold.

Cost Components

• Direct Costs: Directly linked to production (raw materials and manufacture)
• Indirect Costs: Quality control, shipping

COGS Calculation Formulas

• Sales Cost = Stock consumption (raw materials, packaging) + Direct labor cost + Indirect production cost (utilities, equipment depreciation)
• Initial stocks + Purchases - Consumptions = Final stocks
• Stock consumptions = Initial stocks + Purchases - Final stock