Account Analysis

Quick Summary of Account Analysis

To determine the accuracy of costs for a company. A cost accountant performs this by assessing variable costs.

Account analysis is examining the specific line items that comprise an account. Account analysis is particularly popular for balance sheet accounts, as they are real accounts with ongoing balances. Without proper account analysis, these accounts frequently accumulate balances that should have been eliminated previously. If external auditors identify these issues during an audit, they will order the corporation to write off the corresponding items, resulting in unexpected profit decreases. To avoid these large write-downs, it is a best practise to monitor the contents of balance sheet accounts on a regular basis throughout the year. Monthly reviews may be conducted on larger accounts, while quarterly reviews may be conducted on smaller ones.

Account analysis can also be performed on the income statement’s nominal accounts. These funds, however, are drained out to retained earnings at the conclusion of each fiscal year, leaving little room for unexpected items to accumulate in these accounts. Additionally, such an analysis typically reveals that a revenue or cost item was recorded in the incorrect revenue or expense account; shifting the item to a new account has no net effect on the profit or loss reported by a company. As a result, account analysis is most advantageous when applied to balance sheet accounts.

Another advantage of account analysis is that the person performing the reviews may notice unusual expenditures and bring them to management’s attention. This can result in the elimination of certain expenses or the detection of fraud committed against the business. Examining account balances on a trend line over the last few years is a good way to identify these outliers.

How To Conduct An Account Analysis

Account analysis can be performed effectively by itemising the contents of an account on a single worksheet of an electronic spreadsheet and assigning the month-end date to that worksheet page. Reconcile the worksheet detail to the account balance. When you do the next account analysis for the same account, copy the worksheet contents to a new worksheet, label the page with the new month-end date, and reconcile the account again. By using this method, you can keep a record of the contents of an account month after month for as long as you want. This is useful for researching historical accounting questions and can be used to respond to auditor questions after the fiscal year has ended.

Account Analysis in Cost Accounting

In cost accounting, the account analysis term is also used to determine the fixed and variable cost components of an account, which is useful for contribution margin analysis and the construction of flexible budgets.

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