Supply Chain Finance is something a manager must keep in perspective. He must be aware of accounting, difficulties of depreciation and the transactions of the business.
The income statement provides a summary of the flows in, revenue, and out, expenses over a period. It could be described as the sum of income-generating transactions.
So, it’s important for a manager to keep track of those data. Because that will allow the company to measure the financial transactions in each period. The income statement is composed by three things:
- Revenues: turnover, sales, proceeds, top line – the income flow.
- Expenses: costs, the outgoing flow.
- Profit: income, earnings, bottom line – the difference between incoming and outgoing flows.
With those basic concepts in mind, we can discuss further how a supply chain manager must deal with each one of them.
Supply Chain Expenses
There are several components a supply manager must pay attention when dealing with expenses. For example, there are the Costs of Goods Sold, which are the direct costs of producing the good/service
Like those, we can include the Costs of Sale, that also consider the expenses outside the production, such as marketing campaigns and product distribution.
Not every cost in a supply chain is related to money. One of them, for example, is the depreciation of goods, which happens with the use of equipment that doesn’t last indefinably.
Another one is the Amortization, or a reduction of goodwill – which is a intangible asset that arises when the firm acquires another form at a price higher than the book value of the acquired firm.
Finally, we have the SG&A that stands for Sales, General and Administration. Those are the overhead costs associated with generating revenue.
So, we can conclude that the Operating Expenses is the sum of COGS, Depreciation and SG&A.
The Balance Sheet
Another important feature a supply manager must dominate is the Balance Sheet. It presents the financial condition of operations and consequently, the overall of the firm.
It lists the assets – goods owned by the company that have a measure value – and the liabilities – which represents the claims against assets by other parties.
The balance sheet is a good way to understand the assets and obligations of a firm in a specific moment of time. Assets should always equal liabilities.
- Assets: Current Assets and Long-term Assets. Current is short-term and pay for obligations. Long-term are facilities, equipment, and durable things.
- Liabilities: Current Liabilities and Long-term Liabilities. Current usually needs to be paid in the next accounting period. Long-term includes mortgage, loans, bonds etc.
The Roles of Accounting
The main role of accounting is to keep track of the record of transactions and cash flow of a company. Also, they classify the source and use of funds. Mainly, there are three types of reports:
- Financial Reports: Intended to the firm’s investors. Includes income statement and balance sheet.
- Tax Reports: They are provided to the government.
- Product Costing: These are used to management on the decision-making process.
Now we will concentrate in a couple of choices a accounting can make. Although it is possible, it’s always good to follow the generally accepted accounting practice, avoiding problems for the firm.
Possible Choices of Accounting
The accounting have choices on how to report different transactions. That results in the possibility of a supply chain action look different in different reports. For instance, the same action can impact more the financial report than the product costing.
There are sets of choices a accounting can make. On the product costing, he is free to determine how to allocate the overview and how to categorize expenses and create insightful results.
On the depreciation methods, it’s possible to set the rate and period length in many ways. But there is established accounting prices for determined types of assets.
Assets and expenses are not always clear, so it’s not pre-determined which classification to give. If it’s an investment or a cost. The accounting has the decision on how to classify it.
What’s Supply Chain Finance?
Supply Chain finance is a broad term that can describe a lot of different activities. It can be the way we look at the supply chain trough the financial side. It also helps us see the impact on transactions and costs.
But recently it’s been defined as a method to provide liquidity to buyers and sellers. The supply chain finance is a set of solutions that will help companies finance it’s own capital.
Finally, it leverages the financial role within the supply chain and it’s relationship with others players, that composes the company and business. Finance has many variations and different practices.
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