General Inquiries

Financial Statement Presentation

  • 1.  Financial Statement Presentation

    Posted 04-04-2019 13:17
    Hello All.

    What do you think about the following financial statement presentations?

    Discretionary bonuses to non-production employees?  Operating Expense, or Other Income and Expense
    Discretionary 401(k) contributions?  Operating Expense, or Other Income and Expense

    Having some fun with above and below the line!!!

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    Joseph Harper CPA, CCIFP
    CFO
    Greater Dayton Construction Group
    Beavercreek OH
    (740) 607-1449
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  • 2.  RE: Financial Statement Presentation

    Posted 04-04-2019 13:18
    [401(k) to non-production employees]

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    Joseph Harper CPA, CCIFP
    CFO
    Greater Dayton Construction Group
    Beavercreek OH
    (740) 607-1449
    ------------------------------



  • 3.  RE: Financial Statement Presentation

    Posted 04-05-2019 12:25
    ​As a user of financials, we greatly appreciate these items being broken out below operating expenses if possible if they are truly discretionary.

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    Marc Hendrikson CPA, CCIFP, CGMA
    Senior Vice President
    BOK Financial
    Denver CO
    (303) 383-1270
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  • 4.  RE: Financial Statement Presentation

    Posted 04-05-2019 08:00

    Operating expense (overhead) for both, in my opinion.

     

     

    Robert McManus

    Chief Financial Officer

    Direct: 404.965.9349 

    Main: 404.361.5154 | Fax: 404.965.9355

    PO Box 45717 | Atlanta, GA 30320

    www.msrs.com

                

     

     

     

     






  • 5.  RE: Financial Statement Presentation

    Posted 04-05-2019 08:36
    The words 'discretionary' and 'non-production employees' incline me to other expense for a more true representation of the numbers.

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    Lucrezia Esteban
    Controller
    East Muskegon Roofing and Sheet Metal Co., Inc.
    Muskegon MI
    (231) 744-2461
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  • 6.  RE: Financial Statement Presentation

    Posted 04-08-2019 12:19
    I like your thinking but discretion does not dictate how a cost should be classified.  We have a lot of expenses that are "discretionary" such as donations or advertising.  "Other" expenses should be limited to those outside your primary business operations such as a construction company (not a developer) selling an investment property at a loss.

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    Reba Stephens CPA
    Director of Finance & Accounting
    Ausland Group
    Grants Pass OR
    (541) 476-3788
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  • 7.  RE: Financial Statement Presentation

    Posted 04-08-2019 14:36
    Just so you all don't think I am a total dunce.  I took Joseph's original question to mean 'other', not 'Other' expense.  I record these discretionary contributions in Selling and Admin expenses and this is the 'other' expense I was referring to in my original comment.  Required matching contributions could be considered operating expenses for non-productive employees, but putting discretionary amounts there could cause one to inflate WIP adding burden that is not representative to operations.

    Agreed - fun conversation!

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    Lucrezia Esteban
    Controller
    East Muskegon Roofing and Sheet Metal Co., Inc.
    Muskegon MI
    (231) 744-2461
    ------------------------------



  • 8.  RE: Financial Statement Presentation

    Posted 04-05-2019 09:12
    Typical GAAP statements would be structured with the following format:
    1. Revenues
    2. Cost of Goods Sold (materials, direct labor, depreciation, etc. and costs incurred that are associated with the direct wages ie. workers' compensation, 401k, bonuses, etc. Typically would also include some form of in-direct labor for supervision, job/project oversight as well as the pro-rata costs associated with those wages)
    3. Gross Profit
    4. Selling, General and Administrative
    5. Income from Operations 
    6. Other Income/Expense
    7. Net Income

    To answer your question, those costs are operating and above the line and should further be classified between costs of goods sold and selling, general and administration.

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    Adam Stanard CPA
    Chief Financial Officer
    RW Dake Construction
    East Rochester NY
    (585) 381-2500
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  • 9.  RE: Financial Statement Presentation

    Posted 05-01-2019 09:09
    Thanks for this!
    Great thread.

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    Rachel Coleman
    Accounting Manager
    Terwisscha Construction
    Willmar MN
    (320) 234-1664
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  • 10.  RE: Financial Statement Presentation

    Posted 04-05-2019 09:29
    ​I would be in for operating expense (sales general & administrative) and not other income & expense.

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    William Patt
    Vice President/Chief Financial Officer
    Corval Group, Inc
    St. Paul MN
    (651) 605-2474
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  • 11.  RE: Financial Statement Presentation

    Posted 04-05-2019 09:39
    Both of them should be presented in operating expenses.

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    Zee Malik CCIFP, CPA
    Audit Director
    Katz, Sapper & Miller, LLP
    Indianapolis IN
    (317) 452-1040
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  • 12.  RE: Financial Statement Presentation

    Posted 04-05-2019 11:06
    Definitely operating expense for both.  Overhead (non-direct) employees in SG&A and direct employees in COGS.

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    Jeff Brock-Jones, CPA
    CFO
    Osburn Companies, LLC
    Garland TX
    (214) 919-2984
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  • 13.  RE: Financial Statement Presentation

    Posted 04-05-2019 11:28
    For internal financial statements I would include discretionary 401(k) contributions for non-production employees as general administrative expense but prefer to classify discretionary bonuses as other expense.  I like the bonuses below the line so they are viewed more as a result of bottom line performance than a cost to cover.  The bonuses will likely be re-categorized if you have a review or audit but that's something easy to explain to the end user (bank, bonding, etc.).

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    Jeffrey Garber CPA, MBA
    Sunset Air, Inc.
    Lacey WA
    (360) 923-1244
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  • 14.  RE: Financial Statement Presentation

    Posted 04-09-2019 11:33
    I like Jeffrey Garber's answer.  I believe that every financial statement should tell a story.  I generally believe that the best financial statement stories involve making more operating profit than less operating profit.  When we report discretionary bonuses in other income/expense, our story says, "We made more money this year than our net income shows because we decided to share some of our income/profits with our team members - without whom we would not have made that much money."  And, by showing the discretionary bonuses in other income/expense, we leave our operating income at an appropriately higher amount than we would if we included those bonuses in operating expenses.  And I tend to like those discretionary bonuses shown on the income statement, rather than hidden in the footnotes - bragging in a way that, "We value our team members more than we value net income."  I believe it makes for a compelling story to both the bank and the bonding company.  It says, "We have a long term view in mind.  We intend to stay around for a long time with the support of long term team members."

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    Ted Hoffman
    McClone Construction Company
    El Dorado Hills CA

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  • 15.  RE: Financial Statement Presentation

    Posted 04-09-2019 11:42
    Well Said!!

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    Joseph Harper CPA, CCIFP
    CFO
    Greater Dayton Construction Group
    Beavercreek OH
    (740) 607-1449
    ------------------------------



  • 16.  RE: Financial Statement Presentation

    Posted 04-05-2019 15:17
    Thank you all for a lively discussion.

    ------------------------------
    Joseph Harper CPA, CCIFP
    CFO
    Greater Dayton Construction Group
    Beavercreek OH
    (740) 607-1449
    ------------------------------



  • 17.  RE: Financial Statement Presentation

    Posted 04-08-2019 11:17
    This was a good read, and exactly why I like this community.

    There are two schools of thought that are on this thread. The first is in regards to GAAP financials and the second is in regards to Management.financials. GAAP financials, as stated by Adam Stanard, require that:

    "...those costs are operating and above the line and should further be classified between costs of goods sold and selling, general and administration."

    However, Mark Hendrickson and Jeffery Garber both have interesting, and valid, points--they prefer to see it under the line. For management purposes, expenses such as these should be classified where it makes the most sense for the decision-makers, not what GAAP requires. Specifically, the classification of expense for use in internal decision-making should follow where the manager budgeted the expense.

    Now, this does cause additional administrative work! It isn't okay to give non-GAAP financial statements out to any of our creditors or investors, and therefore we need to be able to quickly move these between categories. In Viewpoint's Vista software, we use GL Account Parts to manage this. I think you can have the best of both worlds, Joseph!


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    Michael Kelley
    President
    Silvertrek Systems LLC
    Battle Ground WA
    (360) 667-3340
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  • 18.  RE: Financial Statement Presentation

    Posted 04-08-2019 11:39
    ​As another side point to Michael's very good reporting comments, most users of private company financial information tweak the GAAP presentation (sometimes in a material way) in software spread systems or spreadsheets to determine their "adjusted" view of a company's financial situation.  This includes how ratios and even covenants are calculated (most of which is never shared with the client but is a significant part of the underwriting exercise).  I would also point out that in 20+ years of working with the accounting profession as a banker, I have been amazed at the lack of consistency in quite a number of areas, particularly as it relates to contractor financial reporting.  Moral here: do what makes sense for you and your users and unless you have SEC or other public reporting requirements, most of us can figure out what you are trying to show us (or hide lol).

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    Marc Hendrikson CPA, CCIFP, CGMA
    Senior Vice President
    BOK Financial
    Denver CO
    (303) 383-1270
    ------------------------------



  • 19.  RE: Financial Statement Presentation

    Posted 04-08-2019 11:45
    This is great discussion.
    Where else is it possible to get relevant, industry specific insight?

    Thank you all!

    ------------------------------
    Joseph Harper CPA, CCIFP
    CFO
    Greater Dayton Construction Group
    Beavercreek OH
    (740) 607-1449
    ------------------------------



  • 20.  RE: Financial Statement Presentation

    Posted 04-09-2019 09:22
    Interesting topic.

    I think regardless of the fact that the bonuses are considered "discretionary," the expense is still considered operating. While the amount might be discretionary, it doesn't mean you could simply do away with it and have no adverse effect on operations.
    If mgmt opted to do away with the discretionary bonuses, what happens to operational capacity? My guess is you would experience some turnover due to unhappy personnel and capacity/production would decline. So, discretionary or not, those expenses play a vital role in operational performance and as such ought to be considered an operational expense.

    This is my Mgmt Accounting brain thinking.

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    Matthew Radniecki
    CFO/Controller
    Baratto Brothers Construction, Inc.
    Crosslake, MN 56442
    218-820-8049
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  • 21.  RE: Financial Statement Presentation

    Posted 04-11-2019 18:15
    ​I appreciate what Jeff Garber says. It makes sense. Good insight Jeff !!

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    Stephen Hadley
    Controller
    Quigg Brothers, Inc.
    Aberdeen WA
    (360) 533-1530
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