Nature of business organisation and accounting systems

CAT MA1 Course Notes Contents Page

The organisation, and the main functions of an office as a centre for information and administration.

An organisation can be defined as:

A social arrangement which pursues collective goals, which controls its own performance and which has a boundary separating it from its environment. Organisations can include businesses such as companies and partnerships, clubs, charities, government departments, hospitals and schools. Most organisations have some sort of internal structure. For example, a manufacturing business will have a factory where goods are made, a warehouse where they are stored and offices where information is stored and administration carried out. Each of these can then often be subdivided. For example, a factory might be subdivided into component production, assembly and finishing departments.

An office typically has departments for the following:

• Finance and accounting
• Purchasing goods and materials
• Sales and marketing
• Wages and salaries
• Information technology
• Human resources management

These departments allow administration tasks to be carried out (such as ensuring orders are placed for materials, that customers are billed for their purchases and that employees are paid their wages and salaries). They also hold the information that is essential for running a business such as: which customers owe us money, how many items we have in inventory, who our best customers are, what our most profitable sales are and so on. Typically the departments are shown on organisation charts.

Functional organisation

In the diagram above the departments are arranged by function.

Divisional organisation

Divisions are often determined by geographical area (for example, a European Division and an Asian Division) or by product (for example, a Car Division and a Truck Division). The divisional arrangement can allow each division to specialise. As you go down an organisation chart, there is usually less power and authority at each level. Therefore, there is a hierarchy of superiors and subordinates and this allows organisations to be coordinated so that their collective goals can be achieved. It also allows responsibility and decision-making to be spread down the organisation. This is known as decentralisation and it leaves senior managers time to concentrate on the most important decisions whilst more junior staff will have responsibility for less important matters. Decentralising or delegating responsibility to junior staff members can be very motivating for them and also allows specialist decisions to be made by appropriate experts. However, there is always a danger that decentralisation results in poor coordination between departments and decisions have to be monitored carefully.

The function and use of a manual of policies, procedures and best practices in an organisation.

It is normal for organisations to develop and document a set of policies, procedures and best practice. These perform the following important functions:

• Guidance for employees eg on holiday entitlements
• Training and instruction eg on how to request replacement of a piece of equipment
• Uniformity of approach eg that all employees are subject to the same discipline
• Meeting legal requirements eg health and safety rules
• Maintenance of operating standards eg on how to follow up customer complaints
• Maintenance of efficiency eg how to process an application
• Maintenance of security eg how to use computer passwords and back-up procedures.