Characterization and classification of transactions;

What organisations need to know is that an income statement presented as below denies decision makers vital information that would help them understand the performance of the entity and hence make better decisions.

Income Statement as at 31st Dec 2014
Income:
Sales	21,584,890
Expenditure:
Rent	240,000
Salary	400,088
medical	1,340,000
Transport	13,000,000
casual labor	269,000
Advertisement	340,000
Printing and Photocopy	900,800
Announcements	64,000
Audits	73,000
Accountancy	889,000
consultancy	50,000
Total Expense	17,565,888
Profit/loss	4,019,002

An income statement that breaks down the income and expense into categories will release a lot of information that would help decision makers properly asses its performance.                           The income statement would look like this;-

                                                                                      DETAILED

							Income Statement as at 31st Dec 2014
							Income:
								Category 1				20,000,000
								Category 2				1,350,000
	SUMMARY							Category 3				234,890
								Total				21,584,890
	STATEMENT OF COMPREHENSIVE INCOME									EXPENDITURE
										Administrative cost
	Income Statement as at 31st Dec 2014										Rent		13,000,000
								transport				234,000
	Income:							medical				560,000
	Category 1	20,000,000						Total				13,794,000
	Category 2	1,350,000
	Category 3	234,890					Marketing cost
		21,584,890						Transport				400,000
	Expenditure:							allowance				370,000
	Administrative cost	13,794,000						Photocopying				890,000
	Marketing cost	1,660,000						Total				1,660,000
	Operational cost	1,860,000
	TOTAL EXPENSE	17,314,000					Operational cost
	PROFIT/ LOSS	4,270,890						Transport				654,000
								casual labor				1,000,000
								Medical				206,000
								Total				1,860,000
							TOTAL EXPENDITURE					17,314,000
								PROFIR/LOSS				4,270,890

Take an expenditure like transport for example in the first statement it appears as a block figure. This can be broken down and redistributed in the various categories for example transport fare to pick and distribute brochures is a marketing expenditure to be posted as a sub expenditure under marketing category, while transport fare to pick a check from a client/donor is classified as an administrative transport expenditure.

There are however challenges with designing an income statement presentation as above. There is always a risk to false classification which is commonly done in expenditures like transport.

The nature of the organization must be clearly defined and its short and long term objectives well understood. This will determine the type of management system and the reporting format it should employ to effectively process its information.

A good reporting format will help put structure in the financial statement by creating categories. Other organisations will have employment cost as a category while others would have it put as a sub expenditure under Administrative cost. Again it all goes back to having a clear definition of what the organization is all about. This can pose a challenge even to an experienced manager. But JW & PARTNERS would help you overcome this hurdle so …contact us...

We also offer outsourced support to organization that may lack the competency or time to accurately post these transactions under the various categories. You can choose to be served online. 

False classification will not only distort the performance picture of the organization but also have serious Tax implication. A transaction can be disallowed by the Tax man due to wrong classification or characterization…Read Tax accounting...

We offer Accountancy services of designing Accounting documentations such as reports and source document formatting services.

This service can be accessed online…read more…

The approach;

1.  We help your organization come up with a format of a financial statement that is properly segmented with all the categories and subcategories well defined.
2. Then we provide you with an access a software template which you will use to enter your transaction with detailed narratives.

This access template comes with a small tutorial on how to enter your transactions in this template.

You will not have to worry about posting these transactions in the different categories and subcategories. We will do it for you all you have to do is just email this populated template to us. We will then characterize and post them for you in a detailed and later summarize it into a statement of comprehensive Income.

This will save you a lot of time to do other duties of running the organization but most importantly eliminate the risk of false posting that will lead to distortion of the financial report and eventually an inaccurate performance analytic Report.  

We will help you transform your financial statement from;

Categorized distorted income statement to a well formatted meaning full statement..Contact us.