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How to perform Vertical Analysis of Income Statement (Coca Cola vs Pepsi)

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In this video, I explain vertical analysis of income statement (in Excel) by comparing the real income statements of Coca Cola and Pepsi.

What is vertical income statement analysis?

Vertical analysis is a top to bottom analysis of income statement where amounts for all line items in the income statement are converted to a percentage of a base amount (usually total revenue or Net Sales). This analysis is done to see the relative size of each type of income or expense with respect to the revenue (base).

When is Vertical Analysis used?

Vertical analysis of income statement can be used when trying to understand the size and significance of the components of income statement (hence reflected in percentage), and also to compare financial statements of difference companies either in the same or different industries, which may or may not be of similar size or revenue base. Converting amounts into percentage gives a particularly good idea for comparison, as you will see in the video above. Although Pepsi’s total revenue is more than double Coca Cola’s revenue, you can still compare the two income statements and analyze them to make informed decisions.

Vertical Analysis vs Horizontal Analysis

While vertical analysis looks at the components of income statements and their relative size, horizontal analysis looks at changes in the financial statements over a period of time. It is usually reflected in terms of year over year growth or decline.

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Course: If you would like to learn in detail, how to calculate sales variances and the impact they have on sales $, profit $ and profit margin %, and how to explain performance vs budget and prior periods, click on the link for a detailed video course (at a special price). You will also learn how to analyse and present the results of the variances to management and will be able to download solved variance calculation Excel templates. https://www.udemy.com/course/learn-financial-analysis-of-variances-in-profit-and-sales/?couponCode=YOUTUBE10

Hope you find the information in the video helpful. If you like to watch more videos in accounting, financial analysis and controller ship, videos that help you directly in doing your job, subscribe to my channel. If you liked the video, I would love if you could LIKE it and leave a comment. If you have any questions or feedback, again leave a comment. Lets stay connected at #learnaccountingfinance.

Sort Pivot Table Values largest to Smallest, by Names, Dates and More!

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https://learnaccountingfinance.files.wordpress.com/2021/03/pivot-table-sorting-tutorial-data-shared.xlsx

Learn how to sort pivot table data from largest to smallest values and vice versa for multiple columns including Customer names, months and Values. In this video, I will explain the basics and advanced uses of Sorting Pivot Table Data.

Sort Pivot Table values from Largest to Smallest:

We start with very simple sorting of Customer Names based on the largest value of Sales amount. Then we start adding other fields in the pivot table and see how it impacts the Sorting.

Sort Pivot Table Manually

E.g. we add the countries in the Pivot Table report, and manually change the order resulting in Manual Sorting of the Data.

Sort Pivot Tables by Subtotals and Grand totals

We can also sort Pivot Table based on subtotal values or Grand Total values. Just click on the Cell for the field you are looking to sort and then click the sort ascending or Descending button for this to work.

Checking Pivot Table Sort Settings

We can also check current Pivot Table Sort settings by right clicking on any field and Value and then clicking on Sort à More Sort Options. This shows exactly how the current sorting is setup in the Pivot Table.

Sort Pivot Table by Months and Dates

We also take a look at how we can sort dates or months in Pivot Tables. By default, if the dates or months are entered in correct format, the Pivot Table will sort them based on Oldest to Newest. However, we can change that setting and Sort based on values for each date as well as sort from Newest to Oldest date or month.

Issues with Sorting, Errors in Sorting data

Sometimes, you may not be able to sort values when there are no subtotals or Grand Totals to click and Sort on. In this case, you can still sort Pivot tables data even though you do not add the subtotals. You can do this by right clicking on the Field you want to sort by values, and then click on Sort, and then More Options. Then Choose Ascending or Descending Sort option. Finally, select the value field you want to sort based on, from the Drop down selection available.

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Course: If you would like to learn in detail, how to calculate sales variances and the impact they have on sales $, profit $ and profit margin %, and how to explain performance vs budget and prior periods, click on the link for a detailed video course (at a special price). You will also learn how to analyse and present the results of the variances to management and will be able to download solved variance calculation Excel templates. https://www.udemy.com/course/learn-financial-analysis-of-variances-in-profit-and-sales/?couponCode=YOUTUBE10

Hope you find the information in the video helpful. If you like to watch more videos in accounting, financial analysis and controller ship, videos that help you directly in doing your job, subscribe to my channel. If you liked the video, I would love if you could LIKE it and leave a comment. If you have any questions or feedback, again leave a comment. Lets stay connected at #learnaccountingfinance.

Pivot Table Calculated Field and Calculated Item (Automate Pivot Table Reporting Calculations)

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Apply Calculated Field and Calculated Items to your Pivot Tables and automate calculations for reporting and analysis. This is such a time saver for Excel users and something every Excel user should learn. In this advanced tutorial of pivot tables, you will learn the use and examples of apply Pivot Table Calculated Field and Calculated Items options. Here is the link to the video tutorial:

What are Pivot Table Calculated Fields? Calculated Fields are calculations within the Excel Pivot Tables based on the fields or columns already available in the data. You can create many calculations inside the pivot table so that when you slice and dice or update the pivot table, the calculations also get updated with it.

What are Calculated Items? Calculated items represent Pivot table calculations of the data inside each field. So for example, if you have Calendar month, Sales and Standard margin as three fields available in the data set. Any calculation at the filed level such as std margin % calculated from Sales and Std margin field is done by clicking on “Calculated Fields” on the Fields, Items and Sets button of the Pivot Table Analyze menu. However, any calculations at the level of the data itself, for example calendar month Feb minus Jan is done by clicking on the Calculate Item selection of the same menu.

Why is Calculated Item grayed out or turned off sometimes? It matters what field or cell you have selected on the Pivot Table as it impacts turning On or Off of the Calculated Item feature. If you have selected a Values cell, then Calculated Field will be available but Calculated Item will be greyed out. In order to make the Calculate Item option available you will need to select one of the Cells from the Rows section of the Pivot Table.

Can we use Formulas when Calculating Fields and Items? Yes. this is exactly what the Calculated Fields and Calculated Items are for. However, the application of formulas is not entirely the same as the formulas in regular excel cells. Some formulas do not work at all and some formulas do not work the same way as they would work in a regular spreadsheet cell.

How to use IF statement in Calculated Fields and Items You can use the IF Statement with the syntax as normal in the Calculated Fields and Items calculation. Look at the video where I shared how I used the IF function to calculate sales commission %, and then nested AND function with the IF function to calculate a conditional bonus calculation.

What does List Formula do in a Pivot Table Analyze Menu? The list Formula option creates a separate spreadsheet and shows all the Calculated Fields and Calculated items used in a pivot table. This helps you to see any time the calculated fields which are not originating from the raw data set. This is also very helpful when you are reviewing a pivot table file that was prepared by someone else who included calculated items and calculated fields in the file.

I think using advanced pivot table functions such as Calculated Fields and Calculated Items help the Excel users significantly in being productive and creating and refreshing reports quickly with automated calculations. This saves time and avoids chances of mistakes when formulas are maintained outside of the pivot table calculations.

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Course: If you would like to learn in detail, how to calculate sales variances and the impact they have on sales $, profit $ and profit margin %, and how to explain performance vs budget and prior periods, click on the link for a detailed video course (at a special price). You will also learn how to analyse and present the results of the variances to management and will be able to download solved variance calculation Excel templates. https://www.udemy.com/course/learn-financial-analysis-of-variances-in-profit-and-sales/?couponCode=YOUTUBE10

Hope you find the information in the video helpful. If you like to watch more videos in accounting, financial analysis and controller ship, videos that help you directly in doing your job, subscribe to my channel. If you liked the video, I would love if you could LIKE it and leave a comment. If you have any questions or feedback, again leave a comment. Lets stay connected at #learnaccountingfinance.

How to lookup Names with Spelling Errors (All kinds of spelling differences, Approximate Match)

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https://learnaccountingfinance.files.wordpress.com/2021/02/sample-file-fuzzy-lookup-for-download.xlsx

How to lookup and have an exact match between two columns where the spellings are different with all kinds of spelling mistakes, spaces and characters? In this video, I will show how you can use Excel fuzzy lookup tool to solve this time consuming problem.

Here is the Link to download the Excel Add-in called Fuzzy Lookup: https://www.microsoft.com/en-ca/download/details.aspx?id=15011

Often you find yourself comparing two reports or data sets where the names or text strings are similar but do not match exactly. As a human, you can tell that they are the same, but you cannot look up data using the exact match features of Vlookup or Xlookup. In this case, the Fuzzy lookup tool comes in handy. In this video, I show you how to install and use the Add-in to lookup Company names, or Customer Names from two separate data sources, so that you dont have to spend time manually finding the names and then copying and pasting the values from one table to the other.

I have used this method when trying to compare sales reports from two different sources which have the customer names, one report has the freight costs by customer and the other report has the sales by customer. When I try to bring the two together by using a vlookup or an Xlookup, I am unable to do that because the names do not exactly match. In addition, the differences in spelling do not follow a set pattern, so I cannot even use wildcard matches or be creative about using additional Excel formulae to help with the lookup. In this case technology becomes really useful. My recommendation is to use the Fuzzy lookup tool or add-in which can be downloaded from the Microsoft website and installed in Excel. This is such a time saver. I will show in the video the setup of the tables to use the fuzzy logic add-in as well as the use of the “Similarity threshold” to help lookup majority of the company names in the example. By the way, the sample data includes Revenues and Net Profits for 25 of US top Fortune 500 companies by revenue. You can also download the sample Excel from the link provided. Hope this video helps!

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Course: If you would like to learn in detail, how to calculate sales variances and the impact they have on sales $, profit $ and profit margin %, and how to explain performance vs budget and prior periods, click on the link for a detailed video course (at a special price). You will also learn how to analyse and present the results of the variances to management and will be able to download solved variance calculation Excel templates. https://www.udemy.com/course/learn-financial-analysis-of-variances-in-profit-and-sales/?couponCode=YOUTUBE10

Hope you find the information in the video helpful. If you like to watch more videos in accounting, financial analysis and controller ship, videos that help you directly in doing your job, subscribe to my channel. If you liked the video, I would love if you could LIKE it and leave a comment. If you have any questions or feedback, again leave a comment. Lets stay connected at #learnaccountingfinance #lookupnames #spellingdifference

How to calculate Selling price Cost, Margin, Discount and Rebates (All Considered)

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Download The Excel file here, if you would like to practice along with watching the video. https://learnaccountingfinance.files.wordpress.com/2021/01/calculate-selling-price-with-cost-and-margin-discount-and-rebates-shared.xlsx

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How do you calculate selling price of a product with cost and margin, while taking into account discount and rebates offered to the customer. If you have tried this calculation of a selling price of a product which requires not only the calculation of markup as you only have margin %, but also complicating the calculation are the discount and rebate factors, you probably ended up seeing a Circular Reference error in Excel. This is because the Selling price needs to be calculated, but discount and rebate / commission are also calculated based on the selling price. In this video, I will show you how computers and Excel can help.

Here is the Video …

Microsoft Excel comes with a built in Solver add-in that does the calculation for you. The Solver Add-in is an advanced version of the Goal Seek function and can even consider constraints to the calculation. All you need to do is to set up the product cost calculation template in a way that the Solver Add-in can do the calculation for you. If you had to do it on your own, you would have to use the trial and error method. But with the Excel Solver Add-in, you don’t have to worry, as it is very quick and easy to calculate selling price of a product so that you can achieve the target margin as well as consider discount and rebates and commissions (if applicable). So, if you are provided with, say discount of 1% and rebates of 3% that the customer would usually be able to claim, you can consider this in the product pricing decisions, and with the help of this calculation, you can calculate exactly the price you need to sell for, in order to still achieve the margin % that was originally required.

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How to use Excel XLOOKUP Function – 7 tips for Reporting and Analysis using XLOOKUP

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Click here to download the Excel sample data file so that you can practice along with me. https://learnaccountingfinance.files.wordpress.com/2021/01/learn-xlookup-excel-shared.xlsx

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Learn how to use Excel XLOOKUP and what this function can do for you. In this video, I will share 7 practical ways in which you can use the new XLOOKUP function which serves as a perfect replacement for both VLOOKUP and XLOOKUP.

We start with a real life work situation where you have to respond with data requests quickly. The first situation being where the General Manager is asking for Sales for specific customers within 5 minutes. Not only do you provide him the information requested within 5 minutes, but you go above and beyond to provide additional information that he may be interested in. In the second example, your Manager is asking you to complete and send the sales commission file based on annual sales and commission plan. You use XLOOKUP Match mode functionality to quickly respond to the Manager with the completed sales commission report.

In the third example, you have been asked by the Purchasing Manager to provide him help with pulling the most recent purchase price from a long list of materials and purchase history. You use the Search Mode argument of the XLOOKUP function to reverse the order of the data and provide by material SKU, the most recent purchase price and earn bragging rights.

In the fourth example, the external auditors have asked you to provide information related to customers, in a layout which is the opposite of how your sales data is set up. Knowing well that XLOOKUP can replace horizontal lookup or HLOOKUP, you quickly pull the information in the requested format and respond to auditor’s request.

Finally I share a tip that I have personally been using since the VLOOKUP days which would help you avoid XLOOKUP error, when by mistake the data ranges (lookup array and return array) are not aligned. This tip actually saves a lot of time as well and has been one of my favorite tips.

If you have more questions, or would like to learn about advanced ways of using XLOOKUP, please leave a comment. If you enjoy the information provided in the video, please do not forget to press Thumbs Up

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6 Advanced Pivot Table tricks for Financial Analysis and Reporting

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Microsoft Excel pivot tables are a great tool for simplifying data analysis and reporting. It pays off to learn these advanced pivot table tips and tricks as it can save you hours in time, and also increases your accuracy. The advanced pivot table tips and tricks are a must know for everyone involved in analyzing data or creating and presenting reports. Here are the tips and tricks that are shared in this video…

  1. Apply custom filter using Grouping

2. Grouping to create Data Range or buckets

3. Grouping Dates using Pivot tables

4. Creating Pivot table calculated fields

5. Combining and analyzing two reports in different formats

6. Pivot table slicers and slicer connections

We will start with the powerful grouping function available with the pivot tables. We will look at different examples of grouping, including custom grouping when you want to create a new group that is not available in the source data. After creating custom grouping, you will be able analyze data at the new group level which is extremely useful.

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How to calculate Purchase Price Variance (PPV) and Exchange rate variance, and track accounting entries in SAP

Lets learn what is Purchase Price Variance and Exchange rate variance, how is it calculated and how can we track purchase price variance and exchange rate accounting entries by using transaction codes in SAP. By the way, if you haven’t already, start following our blog and YouTube channel LearnAccountingFinance, so that you can stay up to date with practical information and training (knowledge you can use immediately at your work). This information is also available in video format. You can click on the link https://www.youtube.com/watch?v=e6p9XkuzXNQ to watch the video.

This is a detailed article on purchase price variance, where you will understand first, with the help of a simple example, what is purchase price variance, how it is calculated and recorded, and then we will follow a trail of accounting entries in the SAP system for a real example with purchase price variance and exchange rate variance entries. We will discuss all the transaction codes you can use in SAP to follow the accounting entries for goods receipt, invoice receipt and the related purchase price variance entries in SAP system.

Note: If you would like to learn in detail, how to calculate sales variances and the impact they have on sales $, profit $ and profit margin %, and how to explain performance vs budget and prior periods, click here for a detailed video course (at a special price for readers of this post) showing exactly how this is done. You will also learn how to analyse and present the results of the variances to management and will be able to download solved variance calculation Excel templates.

What is Purchase Price Variance?

Purchase price variance (PPV) is the difference between the standard price of a purchased material and its actual price.

Purchase price variance = (Actual price – Standard price) x Quantity purchased

Lets understand what is standard price first. Many organizations, specially manufacturing organizations, use standard costing system to measure and value their inventory. What it means is that, the cost of inventory is calculated based on a standard cost model, with information such as prices, Bills of Material (BOM) and recipes defined in the model to calculate the total standard cost. The Cost Model is used to calculate the standard cost of finished goods. However, an important element of calculating the finished goods cost is the raw material and packaging costs. To calculate standard costs, prices for raw material and packaging materials are also predefined, often based on the most recent information available on the prices of those materials. For example, if a Cost Accountant or Controller is preparing or updating the Standard Cost Model in the month of September, he/she will be required to list all the raw and packaging materials in the Cost Model with standard prices. In order to determine the standard price, he or she will take a look at the most recent invoices to estimate what the price of the material is likely to be. This price will be considered as the Standard cost of those raw materials and packaging materials.

In SAP, the standard prices are loaded and the system then has the standard cost of each raw and packaging material. However, in real life, things change and so do prices. So when, a new Purchase Order is issued, the price of a raw material may change from what was originally set as standard. This generates a variance and a need to record the variance in the system. Lets take a look at the accounting entries recorded in this scenario.

Accounting entries for Purchase Price Variance (in SAP ERP).

To understand the accounting entries involved with purchase price variance, we will take a simple example (see below).

Purchase price variance for raw material A

In our example, we purchase Raw Material A. Before we purchase the material, the standard cost of the material is already maintained in the system. The standard cost of the material is $10 per KG. The purchasing agent negotiated the price with the supplier and the current price the supplier has offered is now $12. So, the Purchasing agent maintained the price of $12 in the Purchase Order (in SAP). Later on, we received the invoice, and it seems that the supplier lowered the actual price on the invoice to $11. What accounting entries will we see in SAP for this scenario?

Accounting entries when material is received (GR/IR) – The first accounting entry will be made in SAP system when Raw material A is physically received by the company. Lets say 5 KGs of raw material A are received by the Receiving officer at the warehouse/store. At this point, the receiving officer records a Goods receipt (GR) in the system. This generates accounting entries as the company now owns inventory. The price that SAP will use to receive the material is the Purchase Order (PO) price of $12 (because at this point, invoice is not received and PO price is the latest price available in the system). However, since the company uses standard costing system, inventory is always recorded at the predefined standard cost (which is $10 in this case). So the accounting entries will be:

Accounting entries for purchase of raw material in SAP (Goods receipt)

As you can see, raw material inventory is debited (increase) by $50 ($10 x 5 KG) because inventory is maintained at the standard cost. However, the amount payable to the supplier at this point is $60 ($12 x 5KG). Since, an official invoice is not received from the supplier, SAP records the amount payable in a GR/IR account (Goods receipt/invoice receipt). This is a temporary holding place for the amount payable and is fully offset when the actual invoice is received.

However, we see a difference of $10, between the standard cost of material and the amount payable to the supplier at this point calculated as:

(Actual price – Standard price) x Quantity purchased

or ($12-$10) x 5KG = $10

This difference in standard cost and Purchase Order price is recorded in the purchase price variance account as a debit (showing expense because the PO price is higher than standard price).

Accounting entries when Invoice is received – After goods receipt is recorded, an invoice is received by the Accounting Department from the supplier. The Accounts Payable Officer finds the Purchase Order related to the invoice in the SAP system and records the invoice against the Purchase Order. Usually, the invoice price is the same as the Purchase Order price. In that case the GR/IR account is offset against the Supplier payable account and no additional purchase price variance is recorded. The accounting entry would be

Debit: GR/IR Account $60, and Credit: Vendor account $60.

However in our case, the invoice price is also different from the Purchase Order. The Invoice price is now $11 per KG (may be as a reduction in price offered by the supplier). The accounting entries in this case will be as follows:

Accounting entries for purchase of raw material in SAP (Invoice received)

As you can see from the above accounting entries, the GR/IR account is fully reversed with a debit as the supplier invoice is now received and we do not need the GR/IR accrual once the invoice is recorded. The supplier account is credited with $55 based on invoice price ($11 x 5 KG). There is a difference again between the GR/IR reversal and the supplier payable balance of $5 calculated as ($12 – $11) x 5 KG = $5. This difference is recorded as a gain or credit to the purchase price variance account because the invoice price is lower than the accrual already recorded in GR/IR account.

On an overall basis, the net purchase price variance recorded is $5. Initially, when the material was received, a loss of $10 was recorded. Later when the invoice was received at a lower price than PO, a gain of $5 was recorded. As a result, a net purchase price variance loss of $5 was recorded, which makes sense because the difference between standard cost and actual cost of the 5 KG material purchased was $5, and therefore, in the end, the actual cost of purchasing the material is recorded in the books of the company.

Purchase Price Variance (PPV)

Real Example, Purchase price variance entries in SAP System

Now, we will see how to follow the purchase price variance transactions for a material in SAP. There are multiple ways of doing this, but we will take an example where, lets say, you know the material you want to track the variance of. So you start with the material and then follow the variance trail. The first step is to open the “Purchasing documents for material” window by using transaction code ME2M. Here you enter the material number and click on Execute button to see a list of all purchase documents related to this material (see below).

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The output may look something like this (see below – the actual output screen layout depends on the layout selected in the “Scope of List” field for you system). A typical layout can be see below:

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List of purchase documents

You can see information such as Purchase order number, supplier name, material number and description, purchase price and currency, quantity ordered, quantity still to be delivered and still to be invoiced. Now you can double click on the Purchase Order number of your choice to open up the Purchase Order window. In this case, we double click on the purchase order number 4500212814 as follows:

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This will open the purchase order window (t-code ME23N) as follows:

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Example Purchase Order History

Accounting entry in SAP at the time of Goods Receipt

As you can see in the above picture, the Purchase Order price was entered at 623.28 USD per 1,000 KG of material 1003975. On June 25th, 2019, 16,790 KG of material were received by the receiver into the SAP system. This generated accounting entries for receiving material into the system. You can trace the accounting entries by clicking on the material document number for goods receipt 5002189751.

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This will open the material document view window as follows:

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You can click on the FI Documents button to see the accounting entries that were posted in the system at the time this transaction took place. The following window will open once you click on “FI documents” button, and select “Accounting documents” in the next window. The next screen will look like this

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Accounting entries for goods receipt (GR) in SAP

What you see above is very similar to the raw material A example we looked at earlier. This reflects the goods receipt accounting entries. As we discussed, inventory is always recorded at the standard cost (already maintained in the system). In the above entry, you can see, inventory account (47000) is debited with the standard cost for 16,790 KG of raw material 1003975. You can see the standard cost of the material by opening up transaction code MM03, selecting the material number 1003975 and then heading to Costing 2 tab as follows:

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As you can see the standard cost of the material is CAD 1,004.24 per 1000 KG (the standard cost was maintained in Canadian dollars). This means inventory should be recorded at the value of CAD 16,861.19 ($1,004.24 / 1000 x 16,790 KG). We see that this is exactly the amount recorded in the account 47000 in the accounting entry above.

Now, the other side of the entry is the GR/IR account 186200 Tr Pay Accrued. As we discussed, at the time of goods receipt, the account is credited with the Purchase Order price. the Purchase Order price was maintained in US Dollars. You can see in the accounting entry above, the account is credited with USD 10,464.87, which is exactly the price per Purchase Order times the quantity purchased (USD 623.28 / 1000 x 16,790 KG = USD 10,464.87). Since, this is a Canadian company with local currency of CAD, the system converts this amount into Canadian dollars 14,162.48, based on the exchange rate maintained in the system. With this entry we now have a difference between the amount debited (inventory account) and the amount credited (accrued payable account). This difference represents the difference between the standard cost of the material and the purchase order price of the same material. The difference also included an element of exchange rate difference, because the rate used to calculate standard cost may have been different from the exchange rate maintained at the time of the transaction. The difference is CAD 2,698.71, and is recorded in the purchase price variance account (in this case, account 400600). This is a gain because the standard cost of the material was much higher than the purchase price, which means that the material is much cheaper now compared the standard cost originally maintained. Here is the accounting entry screen again:

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Accounting entry in SAP at the time of recording Invoice

Now, we take a look at the accounting entry at the time of receiving and recording the invoice. We go back to the Purchase Order document screen in the Purchase Order history tab. We click on the invoice receipt document now.

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Clicking on the invoice receipt document will open up the display document window (t-code FB03) which looks like this …

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Here you can see some important financial information including the amount of invoice, vendor information and tax details. To see the accounting entries you can click on the “Follow-On Documents” button, and then select “Accounting Documents” to see the accounting entries. You will see a screen that looks like this …

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Now you may have noticed that the invoice was received for two purchase transactions, and therefore the total value of the invoice covers both transactions. However, we are following only the first transaction with receipt of 16,790 KG. So, in this window, we will try to isolate the entries only to that one transaction.

In the accounting entry above, you can see, since the invoice received was the same amount as the purchase order price with some minor rounding difference, no purchase price variance is recorded. The GR/IR account is fully offset (made zero) by debiting with the same amount as was originally posted at the time of good receipt, while the vendor account is credited with the invoice price converted at the new exchange rate now available in the system.

Exchange rate Variance:

The CAD to USD exchange rate available in the system when goods receipt was recorded was 0.73982. However, when the invoice was received, the rate had changed to 0.76362. This resulted in an exchange rate variance of CAD 458.03 (calculated as [(0.73982 – 0.76362) x USD 10,465] (adjusted for rounding difference 0.13 USD). This is a gain or credit, because the Canadian Dollar has strengthened between the goods receipt date and the invoice date (and therefore the company has to pay a lesser amount in Canadian dollars to the vendor, then was originally recorded at the time of goods receipt. The vendor account is credited with the amount of the invoice USD 10,465 converted into Canadian dollars at the exchange rate of 0.76362. If we only had one transaction in the invoice, the amount credited would have been CAD 13,704.45. However, the amount credited in this case is CAD 31,260.63 because we have another transaction included in the invoice. So, in this way, you have been able to follow the complete trail of accounting entries for recording a purchase of material in SAP.

Note: If you would like to learn in detail, how to calculate sales variances and the impact they have on sales $, profit $ and profit margin %, and how to explain performance vs budget and prior periods, click here for a detailed video course (at a special discounted price for readers of this post) showing exactly how this is done. You also learn how to analyse and present the results of the variances to management.

We hope you found this information valuable and it clears some of the confusion around purchase price variance calculations and accounting. If you have any questions and comments, let us know in the comments section. This information is also available in video format on Youtube. You can click on the link https://www.youtube.com/watch?v=e6p9XkuzXNQ to watch the video now.

Are you an accounting and finance professional looking to improve your financial analysis skills? Make sure you connect with us by subscribing to the email list. We will be sharing practical tips and advice that will help you transform you career this year. Click here to subscribe to our email list.

We also have a YouTube channel (called LearnAccountingFinance) with helpful accounting and finance, Microsoft Excel and Finance career related videos. You can find our channel by clicking on the link LearnAccountingFinance. Keep you comments and feedback coming!

Commonly used financial terms every new Financial Analyst and Accountant should know!

In this article, we will describe and explain some of the terms most commonly used during discussions of financial performance and business meetings. Understanding what these terms means is essential if you are a new or potential Corporate Finance professional such as a Financial Analyst in the FP&A department, or even a new Accounting and Finance professional. It helps significantly in the job interview process as well if you are interviewing for a job in such Finance roles as you are expected to know what they mean and demonstrate experience of their use.

The key financial and business terms we will discuss in this article are as follows:

  1. MTD, QTD, YTD
  2. Plan, Budget, Forecast, LE
  3. Gross Profit, Net Profit, EBIT and EBITDA
  4. Variance, Favorable and unfavorable variance
  5. YoY, vs LY, vs Bud

MTD – represents Month to Date. The ‘To date’ captions are usually used to represent financial performance or activities for a period of time. MTD will always be followed by the name of a month e.g. “MTD August” means results or performance from the start of August (i.e. 1st August) to the current date of the month of August. However, MTD is more commonly used to refer to the entire month, and can also be used to refer to a month that has already finished. For example, if you are currently in the month of August, then ‘MTD April’ will represent the financial performance for the entire month of April.

QTD – represents Quarter to Date. QTD represents the performance from the start of the Quarter to the current date. E.g. if the company’s financial or fiscal year runs from January to December, and you are looking at the performance of Q4 (ie October to December), QTD would represent performance for the period starting from October 1st to the current date. If the current date is December 15th, then QTD will represent the period from Oct 1st to Dec 15th (roughly 2.5 months).

YTD – represents Year to Date. This term refers to the financial performance, KPIs or activities from the the start of the year to the current date. Again, most commonly, this term is used to refer to the period from the start of year to the end of the most recent month. Similar to MTD, YTD is also followed by month. So, for example, “YTD March” refers to the results related to the period starting from the 1st of January and finishing on March 31st. It is important to remember that the fiscal year or reporting year of some companies may not be the standard January to December period. For example, for a company, the financial reporting year may start from July and end in June of the next year. In this case, the YTD period will start from July, and in this case, YTD September will only reflect the performance for the three months period from July to September.

Note: If you would like to learn in detail, how to calculate sales variances and the impact they have on sales $, profit $ and profit margin %, and how to explain performance vs budget and prior periods, click here for a detailed video course (at a special price for readers of this post) showing exactly how this is done. You will also learn how to analyse and present the results of the variances to management and will be able to download solved variance calculation Excel templates.

Plan or Budget – Most companies have an annual budget cycle, where well before the start of the year, an extensive and thorough exercise is conducted to plan and quantify the expected (or desired) financial results of the next year. The final outcome of the exercise is called “Budget” or “Plan”, and is represented in the form of budgeted income statement, budgeted balance sheet, and often a budgeted cash flow statement. However, a lot of detail may be available as back up to the numbers reflected in these budgeted financial statements. For budgeted income statement, it is common to start with YTD actual performance of the current year, and then add forecast for the rest of year. The full year forecast (including YTD actual numbers) for the current year then becomes the basis for the next year budget. Budgeted balance sheet and budgeted cash flow statements follow the budgeted income statement with additional assumptions for the budget year.

Forecast – The budget or plan is prepared usually once a year. However, things change quickly, therefore many organizations have forecasts in place as well. A forecast is an estimate of the financial performance, but is typically less extensive and thorough when compared with the budget exercise. The frequency of forecasting also varies. Some companies revise forecasts every month, while others may revise them every quarter or even every six months. It is important to note that while forecasts are revised frequently, the budget remains the same. Therefore, when comparing actual results, often the comparison is done both against the Plan (Budget) as well as the current forecast. This is because budget is not rendered completely irrelevant as a result of the availability of a Forecast. Some bonuses and commissions might still be linked to the original budget, and therefore keeping an eye on the performance vs budget is important.

LE – represents Latest Estimate. This term is used to define the most recently communicated or approved estimate of financial performance, specially related to sales. It is similar to a “forecast”, but different in that a forecast is usually submitted at the start of a quarter or a month, but latest estimate can be provided in the middle of a month or quarter as well. A typical example would be, for example at the start of the month of January, a sales forecast is submitted, lets say of $100,000 for the month. However, every Monday, the forecast is reviewed, and then based on new information, the forecast for the month is revised. Lets say, on the 15th of January, based on actual sales so far and information provided from Sales team, it now appears that sales for the month of January by the end of the month will be $120,000. This will be presented in the form of Latest Estimate (LE). So the forecast is still $100,000, but the latest estimate is now $120,000. Usually, a separate column is used to reflect latest estimate next to budget, forecast or prior year actual numbers.

Note: Not all organizations use Latest estimate, and often the term Forecast is used interchangeably with latest estimate.

Gross Profit – Gross Profit can be calculated with the following formula:

Gross Profit = Revenue – Cost of goods/services sold

where revenue represents the proceeds from the sale of products or services, and Cost of goods/services sold represents the cost of producing or procuring the goods, or in the case service, the cost of rendering the service related to the revenue earned.

What is important is that for the calculation of gross profit, other expenses required to operate the business (also known as Operating expenses) are not deducted from revenue. Gross profit only looks at the profit when considering costs of product or service, and not the operating costs of business. Here is a video I created explaining Gross profit, and the difference between Gross profit and Net profit in more detail…

Net Profit – Net Profit considers all the costs including cost of operating business such as selling, general and admin costs including taxes and interests etc. So, Net profit can be calculated with the formula below:

Net Profit = Gross Profit – Operating costs – interest and taxes

or Net Profit = Revenue – Cost of goods/services sold – Operating costsinterest and taxes

Net profit is also referred to as the bottom line, as this is literally found at the bottom of the income statement, and also reflects the overall net profitability of the business.

FYI: Revenue is often referred to as “Top line” as most income statements start with Revenue at the top.

EBIT – represents Earnings Before Interest and Tax, and is a very commonly used measure of the financial performance EBIT reflects the net profit or net income of a business excluding a) interest and b) tax expense, and can be represented with the formula:

EBIT = Net Profit plus (Interest and Tax expense)

What is the importance or use of EBIT? EBIT simply shows you the operational performance of a business before considering interest and tax expense. Think of it this way … if you are an investor looking to invest in a company, you are interested in knowing the EBIT from operations of a company because the interest and tax expenses may not remain the same when you buy the business. You may have extra cash available and might not need the same level of borrowing as the existing business, or the taxation rules that apply to you may be completely different. By looking at EBIT, you can tell exactly what a business can make from its operations on its own before factors such as interest and tax are taken into account.

EBITDA – represents Earnings Before Interest, Tax, Depreciation and Amortization. In calculating EBITDA, we remove depreciation and amortization expenses in addition to interest and tax expenses. Depreciation and amortization are often referred to as ‘non-cash’ expenses. This is because, the actual outlay of cash has often already taken place in the past. Depreciation is a systematic allocation of the cost of fixed assets over the useful life of the asset. So, for example, if a building is purchased at the cost of $1 million, and the useful life of the building is determined to be 25 years. Although the total cost of purchase ($1 million) may have been paid in year 1, a portion of the cost will be recorded in the income statement every year till the completion of the 25 years. Similarly, amortization is the allocation of cost of intangible periods over a pre-defined period of time.

Why is EBITDA important? When looking at the net profitability of a business, depreciation and amortization create two problems; 1) timing difference between the actual cash flow and the recording of expense in the income statement (as in the example above), and 2) different companies my use different methods or assumptions when calculating depreciation and amortization. As a result of these problems, it is often a good idea to take a look at EBITDA, specially when comparing two or more companies for their operational performance. EBITDA helps you compare the performance of companies by excluding the impact of financial, accounting and taxation decisions.

YOY – represents Year over Year. This usually represents a comparison of prior year to current year. You will hear the phrase ‘Year over year growth’ or ‘year over year decline’. A YoY growth of 2% in sales e.g, represents that sales have increased by 2% vs last year. The formula for this will be:

YoY Sales Growth = (Current year Sale Prior year sale ) / Prior Year Sale

However, the calculation does not need to be for the entire 12 months period. You can also have YoY growth or decline for a period of three months, six months or any number of months or days. For example, you may compare the sales of January to March period of last year with the same period (January to March) of the current year. The key is to compare the same number of months, when doing this comparison.

Variance – Variance simply represents difference. It can represent difference from target, difference of previous performance, difference from estimate or expectation and difference from budget.

Unfavorable Variance – For example, if the target for a sales representative for a month was to make a 100 sales of a given product. but the actual sales he or she made in that month turned out to be 90, the variance in this case is -10. It is denoted by a minus or negative sign because it is an unfavorable variance. This is because the more a sales representative can sell, the better it is for the company as well as the sales representative. Therefore, selling less than target is an unfavorable variance and is a negative situation denoted by a negative sign.

Favorable Variance – If, however the actual sales were 105 units, this would be a favorable situation and the variance would be represented by a positive sign, being +5 units.

Note that the higher the sales or income vs target, the more favorable the variance is. However, the higher the expenses are vs target the more unfavorable the variance, as expenses have an unfavorable impact on the profitability of a company.

vs LY and vs Bud – vs LY represents Versus Last Year (often also referred to as versus prior year), and vs Bud represents Versus Budget. Both of these terms are used to compare against actual current year performance. So, for example, vs LY would represent the difference between actual results this year, and the results for the same period last year. Similarly, vs Bud will represent the difference between actual results this year, and the amount budgeted for the current year. As an example, if actual revenue for current year was $10,000, budgeted revenue for current year was $12,000 and revenue from last year was $7,000. Then, in this case variance vs last year is +$3,000 (because actual sales in the current year are higher) and variance vs budget is -$2,000 (because actual sales in the current year are below the budgeted amount).

Are you an accounting and finance professional looking to improve your financial analysis skills? Make sure you connect with us by subscribing to the email list. We will be sharing practical tips and advice that will help you transform you career this year. Click here to subscribe to our email list.

We also have a YouTube channel (called LearnAccountingFinance) with helpful accounting and finance, Microsoft Excel and Finance career related videos. You can find our channel by clicking on the link LearnAccountingFinance.

Make these 4 Changes to Your Resume before you apply for your next Job

Your resume or CV is your gateway for landing jobs. In most cases, you apply by submitting your resume. If you do not have a job, second to networking with the right people, updating your resume is the most important thing you can do. It is worth spending a lot more time than you already have. But what is wrong with your resume? Why does nobody contact you after you have applied.

The Mindset of Hiring Managers

When I did not know what goes on behind the scenes, I was so upset with not getting any responses from the employers that I started believing that most of the job postings are fake. But that is not true. Unfortunately, in the field of Accounting and Finance, despite many open vacancies, the number of applicants for each job is usually very high. As a result the only option left with the hiring managers, whether from Finance or HR function, is to quickly skim through the resumes and shortlist candidates. Do you know what this means? This means they are looking to eliminate candidates first before they start really going through the resumes in more detail to see if the candidate is the right fit. This is why tailoring your resume to each job posted is so important. Here are my 3 tips on tailoring your resume that will make it stick, and lead to an interview call.

1) Be Selective

Let me suggest to you here that despite your keenness on landing any and every job interview, you need to be selective as well. Just like the hiring managers, you should be able to eliminate jobs postings that do not seem relevant to your experience. Guard your energy level when applying for jobs. From the available list of job postings you should be able to short list jobs that you think are at least a 75% match with your experience and skills. I am not saying that you do not apply on job postings that are under 75% match, they can be part of your second round, once you are caught up with all the 1st grade matches. In the world of abundant applicants, quality and uniqueness is the key.

2) First things First

Once you have identified the jobs, read the description slowly and try to create a mental picture of what the role looks like. What are the challenges that the current employers are facing? What would be there ideal candidate for this role? Then start listing the experience, skills and achievements that match the requirement. Make sure to list the most important skills for the job first. The first few seconds of reading your resume are the most crucial so that you do not become part of the elimination list. If they read the first few lines of your resume, chance that they will read the rest of it increases dramatically, and so do the chances of you being called for interview.

3) Add examples, stats and numbers

Once you have the mental picture of the job requirements, you know exactly which of your experiences, skills and examples you need to highlight early in your resume so that it lights up the tired eyes of your recruiters or hiring managers. For example, if the role is related to the manufacturing industry, and you have worked for a manufacturing company as well as a retail and and a service firm, you know they will be most interested in your manufacturing experience. I can even predict that if you get an interview call, they will be asking questions mostly about your time and experience in the manufacturing company.

So, you need to highlight the same experience. Your resume will be heavy on your manufacturing experience. Not only that, even your experience details for retail and service industry should highlight skills that are similar to, or transferable to the manufacturing industry. Add numbers and details. If you helped the company save costs. Don’t just say that! Mention how you did that and how much cost you saved. For example you can state on your resume; “helped save $300,000 by identifying vendor billing errors over a period of three months” (true story by the way!). It does not really matter if the amount is small. It shows that you care and are always looking to add value to your organization which makes you stand out from the crowd. If you got promoted quickly, mention that. If you received a special award or recognition for your performance, mention that. Whatever is true and can make you stand out without sounding overly arrogant, you should include in your resume with examples and numbers.

4) Always include a carefully written cover letter

I have never submitted a resume without a cover letter. Even if the job posting clearly asks for a two page resume, my two page resume will always be followed by a cover letter. Ideally, the cover letter should be the first page the hiring managers or recruiters should see. A well written cover letter can make all the difference. Generally, the resume is very rigid and restricted in the quantity and type of information you can include in it.

A cover letter can take the form of a conversation though and that is where lies its power. I do not recommend the cover letter being longer than a single page. But you can summarize your most important strengths and skills, directly related to the job in the cover letter. The cover letter should be written in such a way that if someone does not even read your resume, they know what you bring to the table. This does not mean you summarize all your skills, experience and qualifications on the cover letter. The cover letter is all about exactly what you have determined to be the most important skills and experience required based on reading the job posting. Use formatting such as bold and italics to guide the eye of the recruiter to the most important and interesting facts about you.

Note: If you would like to learn in detail, how to calculate sales variances and the impact they have on sales $, profit $ and profit margin %, and how to explain performance vs budget and prior periods, click here for a detailed video course (at a special discounted price for readers of this post) showing exactly how this is done. You also learn how to analyse and present the results of the variances to management.

In order to make the cover letter stand out, I have often included remarks, or comments received during my previous employments. For example, once while I was a Senior Financial Analyst, the CFO of the organization remarked, “you have raised the bar in the FP&A department”. Guess what? this phrase is a permanent fixture, typed in bold format, in all of my cover letters. By doing this, the reader gets intrigued and likes to read more on the cover letter. Once you have there attention for 15 seconds, you are probably off of their elimination list and the likelihood of them calling you for interview also increases significantly. You can also include similar statements or remarks in your cover letter, as long as they are true.

I hope these 4 tips that I have shared with you will help you significantly in getting your dream job quickly, as they helped me when I first learnt and applied them. Leave a comment and let me know about your experience.

I have a YouTube channel with helpful accounting and finance, Excel and career related videos. You can find my channel by clicking on the link LearnAccountingFinance.

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