How does the Hybrid Method of Accounting Work?
As mentioned above, the hybrid method is an integration of several other methods. In the absence of an established hybrid method, businesses and companies basically formulate and improvise their own hybrid systems of accountancy. The existence of financial accounting software makes the formulation, development, improvisation and operation of a hybrid system quite easy. The following is the usual way in which the hybrid method works.
1.Anticipation and Costing: This is the first step. Any business organization needs to spend money to produce goods or provide services. The business then resorts to the costing of the product, that is, the expenditure is assessed, considering the per unit cost that the company incurs.
2.Actual Transaction, Journal, Ledger: In case if the transaction is sanctioned by the accounts and finance department, it is entered and recorded on a cash transactional basis. All the entries throughout the year go through the journal and ledger. In cases where the direct cash is used, a cash book entry is done.
3.Tax and Duties: This is a salient feature of the hybrid method. Every transaction is taxed or something needs to be paid to the government. Instead of ascertain tax at the year-end, it is calculated right during the transaction. Often a monetary provision for such tax is made as soon as the transaction is made.
4.Predictable Expenditures: This one is similar to the tax provision. There are certain expenditures which can be predicted. In such cases, cost analysis of expenditures such as raw material procurement, maintenance charges, power consumption, liability payoffs is done and provision for the same is made. This also helps in cost and profit ascertainment.
5.Inventory Analysis: The inventory and its worth is frequently analyzed as it is a crucial part of the asset side of the balance sheet.
6.Consolidation of Accounts: Consolidation of accounts is done by companies which own and operate several businesses and establishments. Different accounts, incomes, expenditures, assets and liabilities and other significant accounts are consolidated on a daily basis, so that management personnel can view the entire thing as a single individual company’s statements.
7.Cost Analysis Statements: Preparation of cost analysis statements is a salient feature where financial accounting and costing brilliantly mix. In a said company, there are several processes working at the same time. A statement indicating the expenditures of each process, per unit and per minute/hour is calculated. The total sales and profit figures of every process are also calculated and indicated on the statement. This is done on a daily basis.
8.Final Accounts: The final accounts are often prepared on a daily basis, these usually include an income and expenditure account, a balance sheet and a cash flow statement (which hints the rise and fall in cash flow). Now, these statements are strictly accrual in nature, and contain market prices of all assets and liabilities. The statement indicates the financial status of the company on a daily basis.
9.Indexes: Due to the highly dynamic nature of modern businesses, graphs indicating, three chief components, namely, assets, liabilities, income and expenditures, are updated every day.
This entire process is possible only due to the existence of superior quality financial software. Most of the entries are automated, due to which statements can be prepared on everyday.
