IGNOU ASSIGNMENT SOLUTIONS
MASTER OF COMMERCE (MCOM - SEMESTER 1)
MCO-05 - Accounting for Managerial Decisions
MCO & 05 /TMA/2024
Please Note:
These assignments are valid for two admission cycles (January 2024 and July 2024). The validity is given below:
1 Those who are enrolled in January 2024, it is valid upto June 2024.
2 Those who are enrolled in July 2024, it is valid upto December 2024.
In case you are planning to appear in June Term-End Examination, you must submit the assignments to the Coordinator of your Study Centre latest by 15th March, and if you are planning to appear in December Term-End Examination, you must submit them latest by 15th September.
Question No. 1
Briefly explain the accounting concepts which guide the accountant at the recording stage.
Answer:
Theory Base of Accounting consists of accounting concepts, principles, rules, guidelines, and standards that help an individual understand the basics of accounting. These Concepts are developed over time to bring consistency and uniformity to the accounting process.
GAAP or Generally Accepted Accounting Principles are the rules and procedures defined and developed by the Financial Accounting Standards Board (FASB) that an organization has to follow for the proper creation of financial statements consistent with the industry standards. The General Accepted Accounting Principles are also known as Accounting Concepts. The primary objective of GAAP is to ensure a basic level of consistency in the accounting statements of an organization. Financial statements prepared with the help of GAAP can be easily used by the external users of the accounts of a company.
Basic Accounting Concepts
These are the basic ideas or assumptions under the theory base of accounting that provide certain working rules for the accounting activities of an organization. There are 13 important Accounting Concepts that are to be followed by companies to prepare true and fair financial statements.
1. Business Entity Concept
The business entity concept states that the business enterprise is separate from its owner. In simple terms, for accounting purposes, the business and its owners are treated separately. If an owner invests money in the business, it will be treated as a liability for the business. However, if the owner takes out some money from the business for personal use, it will be considered drawings. Therefore, assets and liabilities of a business are the business’s assets and liabilities, not the owner’s. Hence, the books of accounts include the accounting records from the point of view of the business instead of the owner. For example, the amount of 1,00,000 in ABC Ltd. by its owner Raj will be considered a liability to the business. The business entity concept applies to partnerships, companies, sole proprietorships, small enterprises, and large enterprises.
2. Money Measurement Concept
The money measurement concept says that a business should record only those transactions which can be expressed in monetary terms. It means that transactions like purchase and sale of goods, rent payment, expenses payment, earning of revenue, etc., will be recorded in the books of accounts of the firm. However, transactions or happenings, like the research department’s creativity, machinery breakdown, etc., will not be recorded in the books of accounts of the firm. Besides, the records of transactions of a firm should not be recorded in physical units, such as 3 acre land, 20 computers, 40 chairs, etc., instead, they should be recorded in monetary terms, such as ₹13 lakh for land, ₹15 lakh for computers, and ₹2 lakh for chairs, etc., in the books of accounts.
However, there are two drawbacks of this concept in accounting. Firstly, according to this concept, the accounting of a business is limited to the recording of information that can be expressed in a monetary unit, but does not involve or record essential information that cannot be expressed in monetary units. Secondly, the concept has the limitations of the monetary unit itself.
3. Going Concern Concept
The going concern concept assumes that an organization would continue its business operations indefinitely. It means that it is assumed that the business will run for a long period of time, and will not liquidate in the foreseeable future. It is one of the most important assumptions or concepts of accounting. It is because the going concern concept provides the firm with the basis to show its assets’ value in the balance sheet.
For example, if an organization purchases machinery for ₹1,00,000, it would not be fair to show the full amount of the machinery in one year, as the company will be getting service or production with the help of machinery for several years. Therefore, the going concern concept by assuming that the business will not liquidate in the foreseeable future states that the firm should record the machinery’s value for its estimated life span. Let’s say, the life span of the said machinery is 10 years. Now, the firm may charge ₹10,000 for 10 years from the profit and loss account.
4. Accounting Period Concept
The accounting period concept defines the time span at the end of which an organization has to prepare its financial statements to determine whether they have earned profits or incurred losses during a specified time span. It also states the exact position of the firm’s assets and liabilities at the end of the specified time span. This information is used by different internal and external users of the organization for various purposes regularly. The financial statements are prepared regularly because it helps them in the decision-making process, and no firm can wait for long to know its results. The normal interval for the preparation of the financial statements is one year. This time interval of one year is known as the accounting period. According to the Companies Act, 2013 and the Income Tax Act, an organization has to prepare its income statements annually. However, in some cases, like the retirement of a partner between the accounting period, etc., the firm can prepare interim financial statements.
5. Cost Concept
The cost concept of accounting states that an organization should record all of its assets at their purchase price in the books of accounts. This amount also includes any transportation cost, acquisition cost, installation cost, and any other cost spent by the firm for making the asset ready to use. For example, Radha Ltd. purchased machinery for ₹60 lakh in July 2021. It has also spent a sum of ₹10,000 on transportation, ₹20,000 on its installation, and ₹15,000 on making it ready to use. The total amount at which the organization will record the value of machinery in the books of account would be ₹60,45,000.
Therefore, the cost concept or historical cost concept states that since the company is not going to sell the assets as per the going concern concept, there is no point in revaluing the assets and showing their current value. Besides, for practical reasons also, the accountants of an organization prefer to report the actual costs to its market values. However, the asset amount listed in the books of accounts of the firm does not indicate the value at which it can sell the asset.
6. Dual Aspect or Duality Concept
The dual aspect or duality concept is the foundation of any business. The concept describes the basis of recording business transactions in the books of accounts. According to the concept, every transaction of the business has a two-fold effect. Hence, it should record every transaction in two places. In simple words, two accounts will be affected by a single transaction. This concept can be expressed as the Accounting Equation:
Assets = Liabilities + Capital
The accounting equation states that the total of assets of an organization is always equal to the total of its owners’ and outsiders’ claims. These claims or equity of the firm’s owners is also known as Capital or Owner’s Equity, and the outsiders’ claims are known as Liabilities or Creditors’ Equity. For example, Rohan started a business by investing a sum of ₹1 crore. This amount will increase the cash (asset side) of the business, and will also increase its capital by the same amount, i.e., ₹1 crore. Therefore, the effect of the transaction will be shown in two accounts, i.e., cash and capital account. The dual concept forms the base of the Double Entry System of Accounting.
7. Revenue Recognition Concept
The revenue recognition concept, also known as the realisation concept, as the name suggests, defines that an organization should record its revenue from business only when it is realised, not when the firm has received the cash. Let us understand the concept with the help of an example. Suppose a client pays ₹5,000 in advance for a product. The company will not realise the amount of revenue until its work on the product is complete. Therefore, the firm will initially record the amount as a liability in the unearned revenue account. Once the product has shipped to the client, it will be transferred to the revenue account. Let us take another example of delayed payment. Suppose a company ships its goods amounting to ₹10,000 to its customer on the credit of 30 days. The company will realise the same as soon as the goods have been shipped even though it will receive the amount in the future.
8. Matching Concept
The matching concept states that an organization should recognize its expenses in the same financial year if the expense is related to the revenue of that year. In simple words, if a firm is earning revenue in an accounting period, even though it incurs the expenses related to that revenue in the next accounting year, the expense will be realized in the same accounting year when the revenue has been realized by the firm. For example, if a salesman sells goods worth ₹10,00,000 in February 2022 on a 6% commission made in May 2022, the commission expense of 6% will be charged in the accounting year in which the sales have been made, i.e., 2021-2022. A company should keep in mind that the matching concept should be followed only after the realisation concept has been fulfilled.
9. Full Disclosure Concept
As the name suggests, the full disclosure concept states that an organization should disclose all the facts regarding its financial performance. It is because the information mentioned in the financial statements is used by different internal and external users, like investors, banks, creditors, management, employees, financial institutions, etc., for making financial decisions. Hence, the concept says that all relevant and material facts or figures about an organisation must be disclosed in its financial statements. To fully ensure this concept, an organization has to prepare its Balance Sheet and Profit & Loss Account based on the format provided by the Indian Companies Act 1956. Besides, different regulatory bodies, like SEBI, also make it compulsory for companies to completely disclose the true and fair picture of their state of affairs and profitability.
10. Consistency Concept
The consistency concept states that there should be consistency or uniformity in the accounting practices and policies followed by an organization. It is because the accounting information provided by an organization through its financial statements would be beneficial only when it allows its users in making a comparison between the statements of different years or with statements of other firms. However, it does not mean that the organization cannot change its accounting policies when necessary. The firm can make required changes in its policies by properly indicating the probable effect of the changes on its financial results. For example, if a company’s management wants to compare the net profit of the current year with the previous year, it can do so only when the accounting policies followed by the company in both years are the same. For example, if a company has used the SLM depreciation method in the previous year and the WDV method of depreciation in the current year; it would not be able to compare the figures.
11. Conservatism Concept
The conservatism or prudence concept believes in playing safely, while recording the transactions in the book of accounts. According to this concept, an organization should adopt a conscious approach and should not record its profits until they are realised. However, it states that the organization should realise any loss even if the company has not incurred it yet, or if there is a slight possibility of loss to occurring in the future. No matter how pessimist attitude this concept shows, it is essential for an organization to deal with uncertainty and allows them to protect the interest of creditors against any unwanted distribution of its assets. For example, if an organization feels that a certain debtor will not pay the amount in the future, it should open a Provision for Doubtful Debts Account. Similarly, an organization should not record its increase in the market value of stock until it is sold.
12. Materiality Concept
The materiality concept suggests that an organization should focus on material facts only. In simple words, an organization should not waste its time on immaterial facts that do not help in determining its income for the period. In order to differentiate a fact as material or immaterial, one should consider its nature and the amount involved. Therefore, a fact will be considered material if the accountant believes that the information can influence the decisions of a user of the financial statements. For example, the original cost of stationery is insignificant to the users of financial statements. Hence they are not included in the closing stock of the statements and are shown under expenses. Similarly, suppose the company has incurred an expense on the marketing of the firm or its products. In that case, it will be shown in the financial statements as it is a material fact for the users and can change their decisions.
13. Objectivity Concept
The objectivity concept of accounting states that an organization should record transactions in an objective manner. It means that the recording should be free from any kind of biasness by accountants and other people. Objectivity in the recording of transactions is possible when the transactions of the firm are supported by verifiable vouchers or documents. The purpose of the objectivity concept is that it does not let the firm’s management and accountants’ opinions impact the financial statements and provide a false image. The concept can be helpful for an organization in creation of its goodwill. Besides, it warns the companies about the penalties if there is any sort of misinterpretation in the financial statements.
Question No. 2
Distinguish between the following :
a) Product cost and Period cost
b) Controllable and Uncontrollable cost
c) Variable and Fixed costs
d) Direct and Indirect costs
Answer:
A Part
Difference Between Product Cost and Period Cost
Based on the association with the product, cost can be classified as product cost and period cost. Product Cost is the cost that is attributable to the product, i.e. the cost which is traceable to the product and is a part of inventory values. On the contrary, Period Cost is just opposite to product cost, as they are not related to production, they cannot be apportioned to the product, as it is charged to the period in which they arise.
Product cost comprises of direct materials, direct labour and direct overheads. Period costs are based on time and mainly includes selling and administration costs like salary, rent etc. These two type of costs are significant in cost accounting, that most people don’t understand easily. So, take a read of the article, that sheds light on the differences between product cost and period cost.
| Basis for Comparison | Product Cost | Period Cost |
|---|---|---|
| Meaning | The cost that can be apportioned to the product is known as Product Cost. | The cost that cannot be assigned to the product, but charged as an expense is known as Period cost. |
| Basis | Volume | Time |
| Which cost is regarded as Product / Period Cost? | Variable Cost | Fixed Cost |
| Are these costs included in inventory valuation? | Yes | No |
| Comprises of | Manufacturing or Production cost | Non-manufacturing cost, i.e. office & administration, selling & distribution, etc. |
| Part of Cost of Production | Yes | No |
| Examples | Cost of raw material, production overheads, depreciation on machinery, wages to labor, etc. | Salary, rent, audit fees, depreciation on office assets etc. |
Definition of Product Cost
The cost which is directly related to the buying and selling of the merchandise is known as Product Cost. These costs are associated with the procurement and conversion of raw material to finished goods ready for sale. Simply put, the cost which is a part of the cost of production is product cost. These costs can be apportioned to products. The cost is included in the valuation of inventory; that is why it is also known as Inventoriable costs. The following are the objective of computing product cost:
It helps in the preparation of financial statement.
It should be calculated for the purpose of product pricing.
Under different costing system, product cost is also different, as in absorption costing both fixed cost and variable cost are considered as Product Cost. On the other hand, in Marginal Costing only the variable cost is regarded as product cost. An example of such cost is the cost of material, labour, and overheads employed in manufacturing a table.
Definition of Period Cost
The cost which cannot be allocated to the product, but belongs to a particular period is known as Period Cost. These costs are charged against the sales revenue for the accounting period in which they take place. Period Cost is based on time, i.e. the period in which the expenses arise. These costs occur during a financial year, but they are not considered at the time of valuing the inventory because they are not associated with the purchase and sale of goods.
According to the Matching Principle, all expenses are matched with the revenue of a particular period. So, if the revenues are recognised for an accounting period, then the expenses are also taken into consideration irrespective of the actual movement of cash. By virtue of this concept, period costs are also recorded and reported as actual expenses for the financial year.
All the non-manufacturing costs like office and general expenses are considered as Period Cost like interest, salary, rent, advertisement, commission to the salesman, depreciation of office assets, audit fees, etc.
Key Differences Between Product Cost and Period Cost
The following are the major differences between product cost and period cost:
1. Product Cost is the cost which can be directly assigned to the product. Period Cost is the cost which relates to a particular accounting period.
2. Product Cost is based on volume because they remain same in the unit price, but differ in the total value. On the other hand, time is taken as a basis for period cost because as per the matching principle; the expenses should match the revenue and therefore, the costs are ascertained and charged in the accounting period in which they are incurred.
3. In general, the variable cost is considered as product cost because they change with the change in the activity level. Conversely, the fixed cost is regarded as period costs because they remain unchanged irrespective of the activity level.
4. Product Cost is included in the inventory valuation, which is just opposite in the case of Period Cost.
5. Product cost comprises of all the manufacturing and production costs, but Period Cost considers all the non-manufacturing costs like marketing, selling, and distribution, etc.
In a nutshell, we can say that all the costs which are not product costs are period costs. The simple difference between the two is that Product Cost is a part of Cost of Production (COP) because it can be attributable to the products. On the other hand Period, the cost is not a part of the manufacturing process, and that is why the cost cannot be assigned to the products.
B Part
Key Difference – Controllable vs Uncontrollable Cost
Understanding the cost classifications of controllable and uncontrollable costs is vital in order to make a number of business decisions. It assists businesses to reduce costs and make choices as to whether or not to proceed with a certain decision. The key difference between controllable and uncontrollable cost is that controllable cost is an expense that can be increased or decreased based on a particular business decision whereas uncontrollable cost is a cost that cannot be increased or decreased based on a business decision.
What is Controllable Cost?
Controllable cost is an expense that can be increased or decreased based on a particular business decision. In other words, the management has the power to influence such decisions. These costs can be altered in the short term. In general, costs relating to a particular business decision is controllable; if the company decides to refrain from making the decision, the costs will not have to be incurred. The ability to control costs mainly depends on the nature of the cost and decision-making authority of the managers.
Variable Cost
Variable cost changes with the level of output, as such is increased when a higher number of units are produced. Direct material cost, direct labor, and variable overheads are main types of variable costs. Thus, if the increase in output is avoided, the related costs can be controlled.
Incremental Cost
Incremental cost is the additional cost that will have to be incurred as a result of the new decision made.
Stepped Fixed Cost
Stepped fixed cost is a form of fixed costs that does not change within specific high and low activity level, but will change when the activity level is increased beyond a certain point
Decision-making Authority
The majority of the costs are controllable by senior and middle management due to their decision-making authority. Decisions relating to costs are taken by managers and operational staff is required to work towards achieving the cost targets
What is Uncontrollable Cost?
Uncontrollable cost is a cost that cannot be increased or decreased based on a business decision. In other words, it is an expense that a manager has no power to influence. Many uncontrollable costs can only be altered in the long term. If a cost has to be incurred irrespective of making a specific business decision, such costs are often classified as uncontrollable costs. Similar to controllable cost, uncontrollable costs can also arise due to the nature of the cost and decision-making authority of the managers.
Fixed Cost
These are the costs that can be altered based on the number of units produced. Examples of fixed costs include rent, lease rental, interest expense and depreciation expense.
Regulated Costs with a Legal Binding
Costs such as tax expense, other government levies, interest expense, and costs incurred to meet safety and other regulatory standards are often uncontrollable since related decisions are taken by external parties.
Decision-making Authority
Since the majority of cost related decisions are taken by senior and middle management due to their decision-making authority, costs are uncontrollable by operational staff at a lower level in the organization.
Controllable vs Uncontrollable Cost | |
| Controllable cost is an expense that can be increased or decreased based on a particular business decision. | Uncontrollable cost is a cost that cannot be increased or decreased based on a business decision. |
| Time Period | |
| Controllable costs can be altered in the short term. | Uncontrollable costs can be altered in the long term. |
| Types | |
| Variable cost, incremental cost and stepped fixed cost are types of controllable costs. | Fixed Cost is an uncontrollable cost in nature. |
| Decision-making Authority | |
| Managers with higher decision-making authority can control costs. | Many costs are uncontrollable when decision-making authority is low. |
C Part
Fixed cost: Meaning
Fixed cost is referred to as the cost that does not register a change with an increase or decrease in the quantity of goods produced by a firm. Fixed costs are those costs that a company should bear irrespective of the levels of production.
Fixed costs are less controllable in nature than the variable costs as they are not dependent on the production factors such as volume.
The different examples of fixed costs can be rent, salaries, and property taxes.
Variable cost: Meaning
Variable cost is referred to as the type of cost that will show variations as per the changes in the levels of production. Depending on the volume of the production in a company, the variable cost increases or decreases.
The various examples of variable costs are the cost of raw materials that are used for production, sales commissions, labour cost, and more.
D Part
To establish a business, it is mandatory to invest some funds to help the business stay afloat. Once the company starts growing and brings in returns, there are certain expenses that you must look after monthly, half-yearly, or annually.
These costs can come in form of salaries, rents, wages, transportation costs, loans, overdrafts, utility bills, etc. To monitor these expenses properly, we can segregate them into direct expenses and indirect expenses.
If you are new to these terms, this blog is for you. Keep reading to learn about direct and indirect expenses, their lists, examples and differences.
What is Direct Expenses?
As the name suggests, direct expenses are those which are associated with a company’s primary operation. These are directly linked with the manufacture and sale of products or services provided.
Direct expenses are a major component of a business or company's financial metric as it helps them to keep track of their spending. The management assesses these expenses to set the cost of a product or service.
Furthermore, the direct expenses of a company rely on the manufacture and sale of products or the services it provides. Consequently, direct expenses tend to fluctuate with the speed of production. However, they stay consistent for each output unit and are monitored by the respective department manager.
Businesses study the direct expenses to calculate their gross profit. Also, the impact of direct expense on a company's profitability is more specific and immediate.
List of Direct Expenses
The following table comprises the direct expenses list for your better understanding:
| Purchase | Carriage | Carriage in |
| Carriage on purchases | Carriage inward | Cartage |
| Transportation Inward | Freight | Railway charges |
| Packing charges | Landing and wharf charges | Insurance in transit |
| Import duty | Clearing charges | Dock charges |
| Octroy duty | Custom duty | Excise duty |
| Manufacturing wages | Manufacturing expenses | Factory wages |
| Factory Insurance | Factory electricity | Factory rent |
Consumable stores:
| Factory light | Factory rates |
| Factory Insurance | Raw materials:
| Factory lighting and heating expenses |
| Royalty | Motive power:
|
Examples of Direct Expenses
Raw materials and labour costs stand as prominent examples of direct expenses. These two parameters contribute towards the manufacturing of products by a company. They also affect the final cost of a product or service that the company provides.
What is Indirect Expenses?
Unlike direct expenses, indirect expenses are those which you cannot link with the production and delivery of a specific product or service. These are certain necessary costs which a company must bear for its day-to-day business to run smoothly.
Furthermore, indirect costs stay constant and do not fluctuate with a company's volume of production and sales. In many instances, indirect expenses are not assigned to one particular region. Indirect costs also do not determine the price of a product or service that the business offers.
You can further classify indirect expenses into two types. These are recurring indirect costs and fixed indirect costs. Those costs that a company must pay regularly are recurring indirect costs. Whereas, costs that stay fixed for a certain duration of the project are fixed indirect costs.
A business needs to take care of its direct expenses and indirect expenses to maintain a healthy financial record. This record ensures that the company stays tax-compliant and also helps attract investors and lenders who wish to analyse their financial profile before investing.
List of Indirect Expenses
The following table covers a list of indirect expenses that a business bears:
| Establishment charge | Office rent | Office expenses |
| Rent, rates and taxes | Printing and stationary | Office telecom charges |
| Telecom and postage | Legal charges | Office electricity |
| General expenses | Insurance | General manager commission |
| Sales allowances | Commission | Discount |
| Sales salaries | Carriage out | Sales expense |
| Delivery expenses | Freight outward | Carriage outward |
| Warehouse rent | Advertisement | Agent and traveller’s commission |
| Travelling expense | Bad debts and provisions | Trade expense and subscription |
| Free sample distribution | Packing and storage expense | Bank charges and overdraft interests |
Difference between Direct Expenses and Indirect Expenses
Here is a tabular representation of the differences between direct expenses and indirect expenses:
Direct expenses | Indirect expenses |
| These are costs that are linked to a company's production and sales volume. | A company must bear these costs to run smoothly and efficiently. |
| These costs are easily identifiable and traceable. | It is difficult to allocate indirect costs to specific products or services. |
| They directly impact the costs of goods the company sells. | Impacts costs of goods sold indirectly. |
| Companies usually track these costs in a specific cost centre. | Companies allocate indirect costs to more than one cost centre. |
| Direct costs are necessary to calculate the gross profit. | Companies evaluate indirect costs to calculate operating expenses and overheads. |
| These fluctuate according to a company’s production volume. | These costs do not rely on a company’s production or sale of goods. |
| The impact of direct expense on profitability is immediate and specific. | It has an indirect and general impact on a business’s profitability. |
To conclude, a company must keep proper track of its direct expenses and indirect expenses for the smooth running of its business. Despite the above differences, both are a crucial component of a company's cost structure and impact its financial performance.
Question No. 3
Write short notes on the following :
a) Sales Budget
b) Material Budget
c) Production Cost Budget
d) Overhead Budget
Answer:
A Part
B Part
C Part
The Overhead Budget can be defined as the budget which is prepared to forecast or show all the future costs that are expected to be incurred during the manufacturing of the goods or services of the company.
It does not include the direct material cost and the direct labor cost along with all other costs which form part of the cost of goods sold, i.e., which generally forms part of other master budget prepared by the company.
The company prepares various budgets to understand future incomes and expenses. For example, manufacturing companies prepare overhead budgets to estimate the company’s overhead expenses. In Overhead budgets, direct labor and direct material expenses are not considered because they already form part of the other master budgets in calculating the cost of goods sold. Therefore, overhead budgets help the management and employees of the company in the future estimation of profitability and the understanding of their limitations in terms of expenses.
In preparing the overhead budget, the variable overheads are shown separately, and they are calculated as the product of total units of production and the rate per unit. Then, below variable overheads, fixed overheads expenses are presented, and last total variable overhead expenses are shown as the sum of variable and fixed overhead expenses.
Overhead budgets are important for companies because they give the company’s management and employees an idea of all the future expenses to be incurred by it. With the help of this, the management and employees of the company understand their limitations and can make strategies to control those expenses. The company’s management and employees can systematically allocate their business resources according to the priority of the expenses.
The Overhead budget forecasts all indirect expenses or overhead expenses to be incurred by the company in the future. Hence, the management and the company’s employees understand future expected expenses. Therefore, it gives them the way to make proper strategies to control those expenses and increase profitability in the future. Moreover, all the limitations are well known to the employees in the present for future expenses. Therefore, the company’s management and employees can differentiate which expenses are important and which are not. Hence, by doing this, the company’s management and employees can avoid irrelevant future expenses. The preparation of the overhead budget is mainly prepared in the manufacturing industries.
Question No. 4
Write a detailed note explaining the advantages and limitations of Standard Costing.
Answer:
Question No. 5
Explain the different types of the reports that are used in an enterprise.
Answer:
While reporting has been a common practice for many decades, the business world keeps evolving, and with more competitive industries, the need to generate fast and accurate reports becomes critical. This presents a problem for many modern organizations today, as building reports can take from hours to days. In fact, a survey about management reports performed by Deloitte says that 50% of managers are unsatisfied with the speed of delivery and the quality of the reports they receive.
Businesses have been producing reports forever. No matter what role or industry you work in, chances are that you have been faced with the task of generating a tedious report to show your progress or performance.
1. Informational Reports
The first in our list of reporting types is informational reports. As their name suggests, this report type aims to give factual insights about a specific topic. This can include performance reports, expense reports, and justification reports, among others. A differentiating characteristic of these reports is their objectivity; they are only meant to inform but not propose solutions or hypotheses. Common informational reports examples are for performance tracking, such as annual, monthly, or weekly reports.
2. Analytical Reports
This report type contains a mix of useful information to facilitate the decision-making process through a mix of qualitative and quantitative insights as well as real-time and historical insights. Unlike informational reports that purely inform users about a topic, this report type also aims to provide recommendations about the next steps and help with problem-solving. With this information in hand, businesses can build strategies based on analytical evidence and not simple intuition. With the use of the right BI reporting tool, businesses can generate various types of analytical reports that include accurate forecasts via predictive analytics technologies.
3. Operational Reports
These reports track every pertinent detail of the company’s operational tasks, such as its production processes. They are typically short-term reports as they aim to paint a picture of the present. Businesses use this type of report to spot any issues and define their solutions or to identify improvement opportunities to optimize their operational efficiency. Operational reports are commonly used in manufacturing, logistics, and retail as they help keep track of inventory, production, and costs, among others.
4. Industry Reports
Next in our list of the most common kinds of reports, we have industry-specific reports. As its name suggests, these types of reports are used in specific industries and provide valuable information about KPIs and goals that are unique to that industry. For instance, construction reports are invaluable tools to track project progress and extract valuable conclusions to optimize processes.
Explain the different types of the reports that are used in an enterprise.
Answer:
While reporting has been a common practice for many decades, the business world keeps evolving, and with more competitive industries, the need to generate fast and accurate reports becomes critical. This presents a problem for many modern organizations today, as building reports can take from hours to days. In fact, a survey about management reports performed by Deloitte says that 50% of managers are unsatisfied with the speed of delivery and the quality of the reports they receive.
Businesses have been producing reports forever. No matter what role or industry you work in, chances are that you have been faced with the task of generating a tedious report to show your progress or performance.
1. Informational Reports
The first in our list of reporting types is informational reports. As their name suggests, this report type aims to give factual insights about a specific topic. This can include performance reports, expense reports, and justification reports, among others. A differentiating characteristic of these reports is their objectivity; they are only meant to inform but not propose solutions or hypotheses. Common informational reports examples are for performance tracking, such as annual, monthly, or weekly reports.
2. Analytical Reports
This report type contains a mix of useful information to facilitate the decision-making process through a mix of qualitative and quantitative insights as well as real-time and historical insights. Unlike informational reports that purely inform users about a topic, this report type also aims to provide recommendations about the next steps and help with problem-solving. With this information in hand, businesses can build strategies based on analytical evidence and not simple intuition. With the use of the right BI reporting tool, businesses can generate various types of analytical reports that include accurate forecasts via predictive analytics technologies.
3. Operational Reports
These reports track every pertinent detail of the company’s operational tasks, such as its production processes. They are typically short-term reports as they aim to paint a picture of the present. Businesses use this type of report to spot any issues and define their solutions or to identify improvement opportunities to optimize their operational efficiency. Operational reports are commonly used in manufacturing, logistics, and retail as they help keep track of inventory, production, and costs, among others.
4. Industry Reports
Next in our list of the most common kinds of reports, we have industry-specific reports. As its name suggests, these types of reports are used in specific industries and provide valuable information about KPIs and goals that are unique to that industry. For instance, construction reports are invaluable tools to track project progress and extract valuable conclusions to optimize processes.
5. Product Reports
As its name suggests, this report type is used to monitor several aspects related to product development. Businesses often use them to track which of their products or subscriptions are selling the most within a given time period, calculate inventories, or see what kind of product the client values the most. Another common use case of these reports is to research the implementation of new products or develop existing ones.
6. Department Reports
These reports are specific to each department or business function. They serve as a communication tool between managers and team members who must stay connected and work together for common goals. Whether it is the sales department, customer service, logistics, or finances, this specific report type helps track and optimize strategies on a deeper level.
7. Progress Reports
From the branch of informational reports, progress reports provide critical information about a project’s status. Employees or managers can produce these reports daily, weekly, or monthly to track performance and fine-tune tasks for the project’s better development. Progress reports are often used as visual materials to support meetings and discussions. A good example is a KPI scorecard.
8. Internal Reports
A type of report that encompasses many others on this list, internal reports refer to any type of report that is used internally in a business. They convey information between team members and departments to keep communication flowing regarding goals and business objectives.
9. External Reports
Although most of the report types listed here are used for internal purposes, not all reporting is meant to be used behind closed doors. External reports are created to share information with external stakeholders such as clients or investors for budget or progress accountability, as well as for governmental bodies to stay compliant with the law requirements.
10. Vertical & Lateral Reports
Next, in our rundown of types of reports, we have vertical and lateral reports. This reporting type refers to the direction in which a report travels. A vertical report is meant to go upward or downward the hierarchy, for example, a management report. A lateral report assists in organization and communication between groups that are at the same level of the hierarchy, such as the financial and marketing departments.
11. Research Reports
Without a doubt, one of the most vital reporting types for any modern business is centered on research. Being able to collect, collate, and drill down into insights based on key pockets of your customer base or industry will give you the tools to drive innovation while meeting your audience’s needs head-on.
12. Strategic Reports
Strategy is a vital component of every business, big or small. Strategic analytics tools are perhaps the broadest and most universal of all the different types of business reports imaginable.
These particular tools exist to help you consistently understand, meet, and exceed your most pressing organizational goals by providing top-level metrics on various initiatives or functions.
13. Project Reports
Projects are key to keeping a business moving in the right direction while keeping innovation and evolution at the forefront of every plan, communication, or campaign. But without the right management tools, a potentially groundbreaking project can become a resource-sapping disaster.
A project management report serves as a summary of a particular project’s status and its various components. It’s a visual tool that you can share with partners, colleagues, clients, and stakeholders to showcase your project’s progress at multiple stages.
14. Statutory Reports
It may not seem exciting or glamorous, but keeping your business’s statutory affairs in order is vital to your ongoing commercial health and success.
When it comes to submitting vital financial and non-financial information to official bodies, one small error can result in serious repercussions. As such, working with statutory report formats is a watertight way of keeping track of your affairs and records while significantly reducing the risk of human error.
Armed with interactive insights and dynamic visuals, you will keep your records clean and compliant while gaining the ability to nip any potential errors or issues in the bud.
