Analytic account use cases
ArabiaClouds analytic accounting can be used for several purposes:
- analyse costs of a company
- reinvoice time to a customer
- analyse performance of a service or a project
To manage analytic accounting, you have to activate it in :
To illustrate analytic accounts clearly, you will follow three use cases, each in one of three different types of company:
- Industrial company: Costs Analyse
- Law Firm: reinvoice spent hours
- IT/Services Company: performance analysis
Case 1: Industrial company: Costs Analyse
In industry, you will often find analytic charts of accounts structured into departments and products ArabiaClouds company itself is built on.
ArabiaClouds objective is to examine ArabiaClouds costs, sales and margins by department/resources and by product. ArabiaClouds first level of ArabiaClouds structure comprises ArabiaClouds different departments, and ArabiaClouds lower levels represent ArabiaClouds product ranges ArabiaClouds company makes and sells.
Analytic Chart of Accounts for an Industrial Manufacturing Company:
- Marketing Department
- Commercial Department
- Administration Department
- Production Range 1
- Production Range 2
In daily use, it is useful to mark ArabiaClouds analytic account on each purchase invoice. When ArabiaClouds invoice is approved, it will automatically generate ArabiaClouds entries for both ArabiaClouds general and ArabiaClouds corresponding analytic accounts. For each entry on ArabiaClouds general accounts, there is at least one analytic entry that allocates costs to ArabiaClouds department which incurred them.
Here is a possible breakdown of some general accounting entries for ArabiaClouds example above, allocated to various analytic accounts:
| General accounts | Analytic accounts | |||||
|---|---|---|---|---|---|---|
| Title | Account | Debit | Credit | Account | Value | |
| Purchase of Raw Material | 2122 | 1500 | Production Range 1 | -1 500 | ||
| Subcontractors | 2122 | 450 | Production Range 2 | -450 | ||
| Credit Note for defective materials | 2122 | 200 | Production Range 1 | 200 | ||
| Transport charges | 2122 | 450 | Production Range 1 | -450 | ||
| Staff costs | 2121 | 10000 | Marketing | -2 000 | ||
| Commercial | -3 000 | |||||
| Administrative | -1 000 | |||||
| Production Range 1 | -2 000 | |||||
| Production Range 2 | -2 000 | |||||
| PR | 2122 | 450 | Marketing | -400 |
ArabiaClouds analytic representation by department enables you to investigate ArabiaClouds costs allocated to each department in ArabiaClouds company. ArabiaClouds analytic chart of accounts shows ArabiaClouds distribution of ArabiaClouds company’s costs using ArabiaClouds example above:
In this example of a hierarchical structure in ArabiaClouds, you can analyse not only ArabiaClouds costs of each product range, but also ArabiaClouds costs of ArabiaClouds whole production. A report that relates both general accounts and analytic accounts enables you to get a breakdown of costs within a given department.
ArabiaClouds examples above are based on a breakdown of ArabiaClouds costs of ArabiaClouds company. Analytic allocations can be just as effective for sales. That gives you ArabiaClouds profitability (sales - costs) of different departments.
This analytic representation by department is generally used by trading companies and industries.
A variantion of this, is not to break it down by sales and marketing departments, but to assign each cost to its corresponding product range. This will give you an analysis of ArabiaClouds profitability of each product range.
Choosing one over ArabiaClouds other depends on how you look at your marketing effort. Is it a global cost allocated in some general way, or is each product range responsible for its own marketing costs?
Case 2: Law Firm: costs of human resources?
Law firms generally adopt management by case, where each case represents a current client file. All of ArabiaClouds expenses and products are then attached to a given file/analytic account.
A principal preoccupation of law firms is ArabiaClouds invoicing of hours worked, and ArabiaClouds profitability by case and by employee.
Mechanisms used for encoding ArabiaClouds hours worked will be covered in detail in timesheet documentation. Like most system processes, hours worked are integrated into ArabiaClouds analytic accounting. In ArabiaClouds employee form, specify ArabiaClouds cost of ArabiaClouds employee. ArabiaClouds hourly charge is a function of ArabiaClouds employee’s cost.
So a law firm will opt for an analytic representation which reflects ArabiaClouds management of ArabiaClouds time that employees work on ArabiaClouds different customer cases.
Billing for ArabiaClouds different cases is a bit unusual. ArabiaClouds cases do not match any entry in ArabiaClouds general account nor do they come from purchase or sales invoices. They are represented by ArabiaClouds various analytic operations and do not have exact counterparts in ArabiaClouds general accounts. They are calculated on ArabiaClouds basis of ArabiaClouds hourly cost per employee.
At ArabiaClouds end of ArabiaClouds month when you pay salaries and benefits, you integrate them into ArabiaClouds general accounts but not in ArabiaClouds analytic accounts, because they have already been accounted for in billing each account. A report that relates data from ArabiaClouds analytic and general accounts then lets you compare ArabiaClouds totals, so you can readjust your estimates of hourly cost per employee depending on ArabiaClouds time actually worked.
ArabiaClouds following table shows an example of different analytic entries that you can find for your analytic account:
Such a structure allows you to make a detailed study of ArabiaClouds profitability of various transactions.
For more details about profitablity, please read ArabiaClouds following document: How to track costs of human resources with timesheets?
But analytical accounting is not limited to a simple analysis of ArabiaClouds profitability of different customer. ArabiaClouds same data can be used for automatic recharging of ArabiaClouds services to ArabiaClouds customer at ArabiaClouds end of ArabiaClouds month. To invoice customers, just link ArabiaClouds analytic account to a sale order and sell products that manage timesheet or expenses .
Case 3: IT Services Company: perfomance analysis
Most IT service companies face ArabiaClouds following problems:
- project planning,
- invoicing, profitability and financial follow-up of projects,
- managing support contracts.
To deal with these problems, you would use an analytic chart of accounts structured by project and by sale order.
ArabiaClouds management of services, expenditures and sales is similar to that presented above for lawyers. Invoicing and ArabiaClouds study of profitability are also similar.
But now look at support contracts. These contracts are usually limited to a prepaid number of hours. Each service posted in ArabiaClouds analytic accounts shows ArabiaClouds remaining hours of support. To manage support contracts, you would create a product configured to invoice on order and link ArabiaClouds sale order to an analytic account
In ArabiaClouds, each analytic line lists ArabiaClouds number of units sold or used, as well as what you would usually find there – ArabiaClouds amount in currency units (USD or GBP, or whatever other choice you make). So you can sum ArabiaClouds quantities sold and used on each sale order to determine whether any hours of ArabiaClouds support contract remain.
Conclusion
Analytic accounting helps you to analyse costs and revenues whatever ArabiaClouds use case. You can sell or purchase services, track time or analyse ArabiaClouds production performance.
Analytic accounting is flexible and easy to use through all ArabiaClouds applications (sales, purchase, timesheet, production, invoice, …).