Inside the monthly report pack
A report line, its supporting schedule and the commentary should refer to the same amount and accounting period. A March service accrual shows how those references fit together.
One March accrual across the report pack
Illustrative extracts from internal management reports. They use the same $6,000 service accrual as the March/April example and are not complete financial statements or a client reporting package.
Income statement
MarchThe March expense
- Service expense
- $6,000
The service was received entirely in March. The supported estimate is recognized as an expense in that period.
Related balance: accrued expenses
Balance sheet
MarchThe liability at month-end
- Accrued expenses
- $6,000
The invoice is still outstanding. The accrual schedule explains the supplier, service period and estimated amount behind this liability.
Supporting record: March service-accrual schedule
Commentary
MarchWhat the estimate explains
- Service period
- March
- Basis
- Agreed service price
The $6,000 expense is based on the agreed price. When the matching invoice arrives in April, it clears the accrual and establishes accounts payable.
Follow-through: clear the accrual when the matching invoice is posted
One service, three report references
Assume the same $6,000 March service used in our accrual example. The business prepares internal reports on an accrual basis and has not received the matching invoice by the March close. Sales tax is omitted. The agreed price supports the estimate.
The income statement includes $6,000 of March service expense. The balance sheet includes a $6,000 accrued liability. The supporting schedule identifies the service, the period and the expected invoice. These are extracts showing one item, not a complete set of financial statements.
A comparison needs the same account grouping
An income statement can compare the month with the prior month, the same month last year or an agreed budget. Those columns answer different questions. Choose the comparison the reader needs and identify its basis.
Check that the account groupings are consistent. Moving maintenance costs from one heading to another can create a movement even when total expense is unchanged. Explain a recast comparison, or identify the grouping difference that prevents a direct comparison.
Keep commentary attached to the amount
Useful commentary names the line or account, describes what changed and identifies what is known about the cause. For the March service, it can explain that the expense is based on the agreed price and that the invoice remains outstanding.
A larger movement may contain several items with different causes. A recurring price increase needs a different explanation from a correction to a prior posting. Commentary that names those items lets the reader distinguish the part likely to recur.
When the records do not explain a movement, keep the open question specific. The report can identify the affected account and the information still needed. A confident-sounding explanation is of little use if it cannot be traced to the accounts.
Read the balance-sheet schedule as well
An accrued-liability schedule should still explain the $6,000 remaining at March month-end. When the matching invoice is posted in April, it should clear that accrual and establish the payable. The expense should not appear again simply because a new document arrived.
Other schedules answer other questions. A prepaid schedule explains the unexpired service period; a bank reconciliation explains the difference between the ledger and the statement. They should agree to their own ledger accounts before their figures support the report.
Identify the report that was issued
The reporting period, version and reporting basis belong with the pack. Retain the schedules and reviewed adjustments supporting that version. If a later correction changes an issued report, identify the replacement and make its effect clear to the people who received the earlier figures.
Working Quarter can prepare and maintain the agreed internal reporting package alongside the business’s bookkeeping. The scope sets out the reports, supporting schedules and review arrangements. These internal reports do not provide an audit or other assurance conclusion.