Business Analysis vs. Accounting Analysis. Real Life Example

okay so we have a segment of the income statement for November of 2024 and December of 24 for a section for salaries and compensation what we're going to do is we're going to add a column here for change and another column for percentage change and the third one for comments.

We'll give the columns header a different color just to make it stand out.

And then we go ahead and perform our analysis.

We'll say the change equals the current period minus the prior period.

We'll drag this down.

And then we'll create the percentage change, which is gonna be our change amount divided by the base period, which is the prior period.

So that's gonna give us the percentage.

The percentage is just gonna help us in defining what is material enough for us to investigate.

We can go ahead and drag our footers just to make sure that it looks correct.

This here is should be changed to a percentage.

Okay, so looking at this, we have a change here that is material enough for salaries.

So we have a change of $24,000.

The change in social security, medical insurance and commission is probably too small for us to comment on.

And it's always a good idea to align with your internal team on what is material enough for the financial statements of your particular company for you to comment on.

For example, here, I'm gonna consider $5,000 as material enough.

But in your case, you can decide it's $1,000, for example, if it's a smaller company.

Okay, so given that $5,000 is my threshold for investigation, I'm going to investigate the salaries change, and I'm going to investigate the bonus change.

Okay, so let's go ahead and investigate why we have this difference.

for the salaries difference period of a period of 24 000 there are two main reasons that the salaries could fluctuate period of a period either you hired more employees or you increase the salaries of employees so i'm going to look at a headcount report just so i can see if we hired new employees in december of 2024 So I'm gonna open up my headcount report.

And by the way, this file here is gonna be available for free download in the description of this video.

Go ahead and download it so you can play around with the same data that I have.

Looking at the headcount report, I'm gonna look at the hire date, which is this column here.

and i'm going to see if we hired employees in december and i can see that we hired two employees in the month of december and that is what is causing my salaries to be higher in december over november so i'm going to go ahead and write my comment and i'm going to say that we checked the headcount report and confirmed the fluctuation is due to hiring of two employees in december of 2024.

Moving on to the second line item that requires investigation, which is the bonus line item, which went down from $80,000 to $62,000, a difference of 18,000 or 23%, which is big enough for us to investigate.

Now, for me to investigate, and again, the purpose of this is to find accounting errors, missed accruals, double bookings, things of that nature.