Month: September 2017

Value Added Tax (VAT) has been introduced in Saudi Arabia for the first time in 1st January 2018 (H1439/4/14).

By implementing VAT a 5% (One of the world lowest VAT percentage) levy is being applied to the majority of goods and services. Petrol and diesel, food, clothes, utility bills and hotel rooms all now have VAT applied. But some exempt from the tax, or given a zero-tax rating, including medical treatment, financial services and public transport.

In Saudi Arabia more than 90% of budget revenues come from the oil industry. The governments want to increase revenue in the face of lower oil prices.

How Does VAT Affect Your Business?

Businesses need to determine the actions to be taken on contractual arrangements, processes, and systems before implementation. As across all departments business functions such as supply chain, cash flow, procurement and invoicing will be affected along with the financial impact of staffing and accounting processes.

• IT infrastructure has to be procured or adjusted to align business processes enabling VAT coding of accounts payable and receivable transactions with internal controls that are compliant with VAT laws and regulations.
• Contractual arrangements with vendors and customers have to be reviewed and updated for each party responsible for paying and accounting for tax.
• All future VAT liabilities and compliance obligations should be determined by mapping the transactions

Hence before the end of this year 2017, it is highly recommended to develop a roadmap for resource planning and identifying the job on hand to submit returns in 2018.

Companies Checklist for VAT Readiness in Saudi Arabia:

• Have a focal point to determine the chart of accounts of goods sold as per tax policies of the VAT.
• Procurement & inventory management should record and archive all invoices along with a recording of tax details of suppliers for the refund.
• Point of sales should display goods price and sales receipt must comply with tax requirements while recording sales.
• Keeping a general record of accounting along with calculating VAT balance for both paying and refund after filling.

What if Companies Don’t Comply with Law and Regulations?

There will be a fine of 10,000 SAR if any company fail to register for tax before the deadlines (Art. 41. Also, failure to submit a tax return within the specified period can be fined up to 25% of the total tax due amount (Art. 42(1); failure to pay the tax due by the deadline will be fined at a rate of 5% per month (Art. 43).

A non-registered person who issues a tax invoice can be fined up to 100,000 riyals (Art. 44); failing to keep proper record or holding them from the authorities can be fined up to 50,000 SR (Art.45)

Check Tranquil, a VAT enabled ERP software Saudi Arabia

What Does Average Costing Means ?

Average cost is the cost referred to as unit cost or weighted average cost. Average cost is either average cost of inventory or the average cost of units manufactured. These two types are similar in nature. A retailer will use the weighted average inventory method to calculate the average cost of his purchased inventory, while the manufacturer will use average unit manufacturing equation to calculate the average cost of produced inventory.

Average cost is the cost referred to as unit cost or weighted average cost. Average cost is either average cost of inventory or the average cost of units manufactured. These two types are similar in nature. A retailer will use the weighted average inventory method to calculate the average cost of his purchased inventory, while the manufacturer will use average unit manufacturing equation to calculate the average cost of produced inventory.

Valuing the average cost of all goods stocked to know the cost of goods sold along with ending inventory is Average cost. It’s very important to know the average cost for taking correct pricing decisions else pricing below average cost will end up in financial losses. At the end of an accounting period to determine the cost of goods in an inventory, the average cost stock valuation method is used. The weighted average cost of all units available for sale is taken to determine the value of cost of goods sold and ending inventory in a company. Accounting techniques like FIFO, LIFO and AVCO are used in stock valuation to manage stock and inventory finances of a company. They help companies manage cost flow assumptions related to stock and repurchases along with determining the value of available stock.

When new product is purchased the average cost is recomputed, but the average cost does not change when a product is sold. When buying products average cost price is used when same product is purchased multiple times over a period of time. This is necessary if purchase were of different numbers, as the larger purchases with varying price contribute more to the average.

For example, the mathematical average of 70sr and 80sr is 75sr, but if you buy 10 number at 70sr and only 1 for 80sr. The lower priced but more number carry more weight when calculating the average price.

How to Calculate Average Cost ?

To calculate average cost, the following formula can be used:Average cost = (First price x Total number) + (Second price x Total number)/ Grand Total
In order to calculate average cost you multiply each price you paid for the number of product you bought at that price. Then add up all of these results to finally divide by the grand total of products you purchased. Knowing the average price you paid for each product will help you in determining the overall costing of your inventory.

Facts & Figures About CLOUD Services.

Cloud services have multidimensional values such as innovation, cost benefits, agility, scalability and business growth. Companies are looking at Cloud services for their entire requirement of external-sourcing as it helps to speed up implementation and eventually support value of time. Cloud computing users continue to increase year after year. Cloud is the direction everyone is heading be it a SMB or a fortune 500 company. Experts predict that by 2020 Cloud will be managing about 40 zettabytes, or 40,000,000,000,000,000,000,000 bytes of data.

Larry Ellison CTO of Oracle says “Cloud computing is not only the future of computing, but the present and the entire past of computing.”

1. Cloud services demand will grow at 18% this year to $246.8 billion from $209.2 billion in total worldwide revenue. (Gartner)
2. The public Cloud market globally is growing at 22% and will top $146 billion in 2017 from just $87 billion in 2015. (CIO)
3. Spending in Cloud computing is growing at 4.5 times the rate of IT spending since 2009 and is expected to grow at 6 times the rate of IT spending from 2015 through 2020. (Forbes)
4. Software-as-a-Service (SaaS) is estimated to grow about 20% to $46.3 billion (Gartner)
5. By 2018 more than 50% of IT spending will be cloud-based.
6. By 2020 about 60–70% of all software, services and technology spending will be cloud-based. (Forbes)
7. Cloud computing will have the most measurable impact on business as per 74% of Tech Chief Financial Officers (CFOs).

Interesting Facts About the CLOUD

• There are about 1.6 billion Cloud personal users worldwide.
• Microsoft’s spent 90% of its R&D budget in 2011 on cloud computing strategy and products.
• As part of ‘Cloud-First’ policy 48% of U.S government agencies has began using Cloud.
• In 2015 US Federal Government by shifting to Cloud Services saved $5.5 Billion.
• Since moving to Cloud more than 90% of all companies saw at least one area of improvement in their IT department.
• In 2016, 70% of all organizations had a cloud run app (up from 51% in 2011) and for larger organizations, the figure is even higher (75%). Experts predict by 2020 90% of all organizations will be running cloud apps.
• For every 600 smart phones or 120 tablets a new Cloud server is being added.
• For SBMs Cloud computing is up to 40 times more cost-effective than running its own IT system or department.
• In 2016, 62% of companies used private cloud, 60% used public cloud and 26% used a hybrid.
• Cloud is so economical that 82 % of all companies who adopted Cloud in projects saved money.
• Microsoft Azure a public cloud platform experienced 93% growth in the first quarter of 2017.

Kingdom of Saudi Arabia is through a colossal transitional phase ‘Saudi Vision 2030’. As a part of this goal several reforms are being carried out; Implementation of value-added taxes (VAT) from 1^st January 2018 is one of them. From then on it is mandatory for all companies doing business in Saudi to keep all its financial and accounting statements/reports up to date.

Any company small or medium needs to focus on its core competency and work towards achieving the business goals for which they have ventured into. Small/medium sizes companies should leverage their resources intelligently as the greatest challenge for them is lack of adequate finance and manpower. So deploying ERP software for their routine cores like accounting, sales, inventory, human resource management, customer relation managements, etc is a must.

Now the basic question is does a small/medium size company need ERP software to do business successfully? Below are few questions for which if the answer is ‘YES’ then you need ERP software.

1. Is completing routine task difficult in your business?
2. Are process and procedure followed in functioning of your business taking a lot of time?
3. Are you still using manual ledgers and book keeping in your accounting and finance operations?
4. Are you using excel or other data tools extensively for your daily data operations?
5. Does generating reports take a lot of time rather than just a click of a button?
6. Are there proper checks by authorized person at the right stage of your business operations?
7. Does your business system support business intelligent like online, web or mobile apps?
8. Does your software have support and up-gradation option if your business grows?
9. Are your customers complaining about your services?
10. Are you losing business because of your inability to keep pace with your competitors?

Tranquil ERP software’s is web based and on cloud, which makes it very cost effective. Highly sophisticated ERP software can be used as SAAS (Software as a service), that come at a very low price plainly as low as the cost of using a monthly internet connection. The best part is you can choose and customize the application/module required for your business and automate the functions and operations as per your specific need.  So no business is too small for ERP software.