I’ve spent quite a bit of time trying to understand how transactions affect accounts. One should remember that the effects of Debit (dr) & Credit (cr) depend on the type of account you are dealing with. For example, receiving money into a bank account, i.e. debiting it, will increase its balance. Whereas, sale of goods, or crediting the sales account, increases its balance. Hope this illustration helps!
Effects on accounts
Disruptive innovation describe innovations that tend to get competitors jump out of their seats. This is something – highly desirable – that the market has never seen before. Wikipedia gives the example of lowering price, but undercutting is a relatively common phenomenon. However, ‘designing for a different set of consumers’ is quite apt.
It is every product manager’s dream to conceptualize a product, or at least a feature that does creates such a wave in the market! And if you ever happen to be at the receiving end of a product demo – like the one that I usually deliver – this is the best compliment you would give. Cheers!
Sales Orders (SO) & Purchase Orders (PO) are 2 key trade documents in any business. They usually two important fields: Payment terms & Delivery terms. After a brief on these terms, we go on to explain Incoterms: internationally accepted trade-terms used in international contracts.
Payment terms most often represent the payment instrument (cheques/collaterals), credit period and discounts, if applicable. In the simplest form, P30 indicates that payment will be made 30 days after receiving the bill/invoice. P30/2%20 is a more complex term indicating that if the payment is done within 20 days (instead of the 30-day credit period), the buyer is entitled tot a 2% discount on invoice value. Payment terms could also be based on collaterals like L/C (Letter of Credit) or Irrevocable credits that help minimize the seller’s risk.
Delivery terms are indicative of the agreement on delivery cost, responsibility (=risk) and ownership of transported goods/services. Costs include freight charges, taxes & duties and commissions to clearing agents. As a seller, I may choose to transfer ownership at my premises {ExWorks}, at my port {Free Carrier}, after loading cargo on board air/sea/road/rail vessel {Free On Board}, customer’s port {Delivered Ex Quay/Ship} or right up to ship-to address (address where goods are required to be delivered).
Incoterms are delivery terms standardized by the International Chamber of Commerce (ICC) for use in international trade. The abbreviations along with description & associated buyer/seller liability are mentioned here.
Talking about commission, in reality commission is a sweeter word for greasing charges at ports; needed an example of organized crime, take this! How would it look if I had a ledger account called Bribes? Doesn’t Agent Commission really sound decent? One of my uncles lives of this profession, so I won’t say another word 
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Days Sales Outstanding (DSO) is an important financial metric for evaluating the effectiveness of converting credit sales (money owed to you) to cash. Considering the time value of money, it indicates the age of an organization’s accounts receivables or AR (sum of all money owed by debtors) in days and the average time it takes to turn receivables into cash. Ideally, this should never exceed the standard payment terms. So for a 52 credit period offered by credit card to borrowers (which is us, debtors to the issuing company), best DSO for the company will be 52. A higher DSO would indicate inefficiency in their collection cycle (and in our payment which they will gladly oblige by slamming exorbitant interest or by delegating collection to recovering agents).
DSO (measured in days) is calculated for a period,
DSO = Accounts Receivables / Credit Sales for the period * 30 (days)
DSO can vary significantly over the course of a year on account of several reasons:
- Fluctuation in sales volume, due to seasonality, economy, etc
- Negotiated payment terms, promotional discounts
Since these situations are common in business, DSO is argued View full article »
Evaluated Receipt Settlement (ERS) is an EDI (Electronic Data Interchange) procedure, part of Supply Chain Management. It was pioneered by GM to address the issues associated with payments against invoices (bills) for goods received. ERS is valid in India. View full article »
Jaffa Cake is a popular (& controversial type) of cake in Great Britain. McVitie’s (United Biscuits) is a notable brand selling Jaffa Cakes. It is controversial in the sense of its classification: it is produced as a cake and becomes hard like a (chocolate-covered) biscuit when stale. Incidentally, the former is exempt from VAT while the latter is charged at 15%. This story is about how McVitie’s proved that their product was a cake and never paid VAT.
RFx is a generic term used to refer to a ‘Request for’ some document. Most commonly, that document is a proposal, quote or information and in rare cases for the bid, thus the acronyms RFP, RFQ & RFI. These are used by companies to seek information from vendors in order to analyze their solutions and ability to meet the business needs.
Gemba, in Japanese, means ‘the actual place’ or ‘the real place’. In business, gemba refers to the place where value is created; in manufacturing the gemba is the factory floor. Its use is extended in IT where the consultant is supposed to assist users at their place so as to make them comfortable with use of the system. It is also suggested that solutions to problems, improvements & ideas will come from going to the gemba. View full article »
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