How To Find Mistakes In The Income Statement

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In this video I show you how to analyze the income statement based on my experience as an auditor and what the common areas of accounting errors or misstatements.
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All views expressed on my channel are mine alone. Not intended as financial or professional advice.

[@Psycho_Analyst]

I learned more than my cma class 🤣

[@TheFinancialController]

Thanks Ameer!

[@mahmoudalshami1557]

Wow great job how to contact you directly?

[@tarunnegi1550]

I am an accounting professional, trust me the way you explained things in your video its just awesome.. it started seem like a cake walk lol.

[@FundamentalEconomics]

Dear Sir, You are still simply the best teacher on finance over the internet. I wish i were a student of yours.

[@BGB17]

I was concerned I may be getting into the wrong feild but I had so much fun watching this video and seeing the company's DNA sequencing. I think I made the right choice

[@genxiao8737]

Wow! This is amazing! I never saw videos that explain real cases like this! This is closer to the real cases in jobs!

[@TheFinancialController]

Thanks for watching my accounting content Gen

[@yinyin7614]

I can't agree more👍. Hope you can keep sharing your experience & knowledge with us. Very useful in my job.

[@elizabethrosa2356]

Bill, I literally did a happy dance while watching this T12 video! Your teaching is incredibly helpful & reignites my love for accounting. Thank you!

[@joydaniels6474]

You're the best on the internet space. When I first found you, I tried watching other channels for comparison. I told myself that if you're this good, then there must be other better people. My finding is that, nobody comes close even by a million miles. You're simply the best, brilliant, concise, and not boring to watch or listen to. This is more than an appreciation of your work, it's a FACT that must be taken to the bank.

[@TheFinancialController]

Thanks Joy!

[@hackit9578]

Totally agree 😊

[@romeshkirpalani848]

Oh lovely, a financial controller....direct experience sharing....I subscribed right away....so excited....🙂

[@yinyin7614]

Great detail. Highly recommended.

[@RajKumar-oe8di]

This is a really very good analysis of an Income statement of a company, and this is how we can identify potential fallouts.

[@stevenkelly8567]

Awesome video! Thank you. The one thing that caught my attention here was your comments about delivery in. I always thought if delivery IN or freight in wasn't close to or equal to zero, it was an error that usually indicated an issue with landed cost allocation but maybe that's just our business model. We try to avoid running delivery in through the P&L. Should just be relieved through COGS and part of the inventory valuation.

[@SHINeeKeyofLucifer]

Thanks! This is really valuable stuff. Would love to see more like this

[@TheFinancialController]

Hi thanks 🙏 will do

[@nicolesitu5078]

Your videos are so practical!👍

[@khmerempiretourarts2571]

Very good explanation, Thank you

[@aaroacademy]

Well explained thank you.

[@tanmaytikle8521]

Your explanation is so crisp and to the point

[@TheFinancialController]

Thanks!

[@ngehulumala9482]

i literally cannot wait to finish my CPA as with it plus your videos I am a confident accountant

[@mohamedrezk6457]

Thanks and appreciating your great efforts

[@TheFinancialController]

Thanks 🙏

[@Sanjab36]

U rock i enjoy every video..it's a music to all finance analyse lovers ears !👌👏👏👏

[@priyankac179]

Thank you for the wonderful content!

[@TheFinancialController]

Thanks you :)

[@stephenadeya8662]

Thanks for the weekly informative and topical session.

[@TheFinancialController]

Thanks stephen

[@Aliakbar-te4du]

thanks for sharing..good stuff

[@shihabkpuae]

Wonderful presentation..!💐

[@TheFinancialController]

Thanks Shihab!

[@yadiravillanueva1416]

Thanks for sharing your knowledge.I am learning a lot. God bless you

[@TheFinancialController]

Thanks!

[@mosaradwan]

Thank you for sharing

[@kramishcool7926]

A very useful video. Appreciated if you put more videos like based on possible misstatement identification

[@TheFinancialController]

Sure will do

[@giorgilobjanidze8297]

Brilliant video. Like other ones. Many thanks

[@henryp218]

awesome video as always!

[@anshulbahal2791]

So much value in your content, thank you

[@anshulbahal2791]

Sir I want to be your student, please guide me. Is it possible to know - about yours live and other courses which can be extremely useful in building a career in accounting ?

[@ramreddyi9710]

Super sir ,I got the knowledge about income statment

[@BaoTran-hu5hx]

Hey Bill, thanks for the video. It is very useful. I would like to understand more throughly about the EBITDA as well as the cash flow techniques based on EBITDA. Would appreciate if you can make a video about it. Also, I am now loving in the EU. I’ve been evaluating several professional qualifications for accounting to pursue such as ACCA, CIMA, etc. For CPA, it is more of the US and not really relevant to the EU. Maybe you can talk about the differences/pros/cons of these qualifications? Thanks!

[@TheFinancialController]

Thanks bao ok I will keep these topics in mind for vid ideas

[@GMHonAir]

Loved this video

[@ramkrishan3267]

Sir you are serving great knowledge...

[@TheFinancialController]

Thanks!

[@YoucefYoucef-ft9ce]

Thank you sir all respect

[@AliAli-zl4ez]

Lot of thanks , à see that the presentation is for à cash flow more than a Balance statement

[@hackit9578]

Hi Bill, thanks for a great video. I always learn something new. Thanks Kesh ☺️ 🇬🇧

[@TheFinancialController]

Glad you enjoyed it

[@yang-pe1kj]

Just start to watch your video this week, , maybe no order to follow. It is great and clear. As this video, I have a question about COG, can you please explain why preparing and packaging for customers should be CoG s expenses but delivery out to customers as operating expenses . Appreciate

[@TheFinancialController]

prep and packaging related directly to the creation of the inventory, so it's cogs. Ship out to customer is not part of creation of inventory, thus not cogs.

[@dforyou-informativetipstra9012]

My accounting guru 🔥👏

[@PRO2358]

Very good video 👍👍

[@ReneeReneeReneeRose]

Great video! I'm interviewing for a Jr financial analyst role for a not for profit healthcare company. Part of my interview is do be able to read the P&L, any tips or advice on P&L mistakes I should recognize? I've been looking at examples but nothing jumps out at me other than revenue is greater than expenses

[@josephkaaya4517]

Great work.

[@TheFinancialController]

Thanks!

[@oyebolaakinyemiaca9592]

Thanks for a well elucidated lecture. Pls can you share the excel file on this and income statement for beginners

[@CorporateFun_DUBAI]

I have no words thanks alot

[@TheFinancialController]

Most welcome 😊

[@olufemiadebayo7777]

Great video. Thanks for this. Could the big numbers also be a reversal or an accrual?

[@TheFinancialController]

Yes that’s a possibility

[@z2alcan]

It was reall nice one

[@ahmedismail717]

Always shining Boss ✨✨

[@TheFinancialController]

Thanks Ahmed! Hope you doing well

[@obwakahenry4498]

Have learned a lot from your videos ... please can you do something on Revenue Review

[@TheFinancialController]

Ok

[@ammie8937]

Hope there’s a video shows how to find an error on balance sheet, really appreciate 🙂

[@TheFinancialController]

Great idea, ok

[@arial5906]

Yes, I think find an error on balance sheet is more difficult.

[@ncfundi]

Hi Bill, I’m in the process of creating P&l based on a caned report from quickbooks where I’m trying to break out EBITDA. The interest, taxes,amortization and depreciation are all rolled into the expense category of the report. Should I totally exclude these accounts from the reporting and then add them back in ? And if so would I include them in the other income/expense area of the p&l? Thanks?

[@amandaholbrook24]

@@TheFinancialController A video on finding balance sheet errors would be wildly helpful, I have been asked that and not really known what answer they are looking for at all.

[@amiramir-bh5dk]

Thanks for the great video. Can the income statement challenges and mistakes of commercial (trading) and service companies be very different? if yes, could you please make a video to analyze the mistakes of these sort of companies?

[@TheFinancialController]

Interesting point. I will think about that for a future vidoe

[@amiramir-bh5dk]

@@TheFinancialController Thank you for your time and consideration.🎎

[@josephtoma6468]

very informative

[@TheFinancialController]

Thanks Joe. Cannot wait to learn some Deuche :)

[@silvianfonutchi1818]

Great content

[@TheFinancialController]

🙏 thanks

[@ahmadnazir5222]

Thank you Bro

[@TheFinancialController]

Any time

[@malamofficial7558]

Thank ❤

[@folasadeoyewole1564]

Thank you

[@TheFinancialController]

You are welcome

[@felixoluwaseyifunmi3955]

Hello sir Thanks for your effort Can you shed more light on cost of sales? Seems it’s an area where most of us get it wrong

[@jonathanma888]

Awesome video bro, I am about to become a financial controller in an ibank, would be great to have some advice from you

[@TheFinancialController]

Welcome to the gang

[@ahmedabdelsamea3794]

Hi Bill, I have a question regarding the commission expense that paid to the collector who gets our due money from customers that expense should be classified as G&A or S&M? And why?

[@time968]

Good Informative Video. I watch all your videos.. especially the Scam/Fraud related . I just cleared CFE, my request you to is do a video on uncovering fraud in Financial Statements/Books ( Misappropriation of Assets etc)/. Thanks.

[@TheFinancialController]

Will do thanks for following the channel

[@kanagasrinivasan3793]

Dear Bill.. Yet another Great Video :) much appreciated.. Would you mind asking me a doubt like what is EGM and What is AOP? very briefly or just the Expansion of EGM and AOP will do for me. Thanks in advance :)

[@TheFinancialController]

Hi kanaga. I am not sure where do you see EGM and AOP in the video. What do they stand for?

[@kanagasrinivasan3793]

Hi Bill thanks for replying. I found that AOP stands for Annual Operating Profit. I see them in an income statement only. Revenue minus Cost is Equal to EGM. But I m not sure what is EGM stands for? Please share me do you have any idea.

[@JL-zn4mr]

Depending on the type of financing, if it was a term loan, wouldn't you expect to see interest expense decrease on a month to month rather than increase as you should be paying more in principal with each subsequent payment?

[@TheFinancialController]

Like you said it depends on the type of loan. For example line of credit, interest can increase based on how much we use of the line. The idea in the video is to check for material errors that stand out

[@olufemiadebayo7777]

Yes please, lets get a video on balance sheet please

[@TheFinancialController]

Sure will do

[@PRO2358]

Sir, do videos on forensic audits too

[@arslanmughal2024]

Kindly introduce some video tutorials about How to perform GL reconciliations in real world with excel sheets.

[@stephyjoseph95]

Hi Sir, I'm ur new subscriber. Can interest income keep under op.revenue If it is a trading company ?

[@TheFinancialController]

Trading in what? Stocks/bonds? Then yes

[@valleycarpentry5269]

Also kitchen rent sum might suggest is just rent..... Ie under operational expenses

[@gnw8066]

Sorry love your video. But one quick question: why payroll of chef and packaging are a part of COGS?

[@manwithoutname0]

Zero dislikes.... u deserve dat

[@TheFinancialController]

Thanks!

[@alkeshshah1777]

Hi! Do you have mistakes to find balance sheet and cash flow for these same financials for this company example you have used here so it can all be connected and we can understand how these messy financials affect the balance sheet and cash flow etc. If not video, Is there any way to find copy these financials and see the errors explained for income statement, balance sheet, cash flow etc? Please help!

[@maryamaishanyc7449]

Thanks ☺️

[@shawnkhanian5584]

for that mistake with the packaging cogs, that would have to be covered in the md&a hopefully

[@haloepic3092]

Nice video . I have a question does being a controller give a better chance of becoming a CFO of a company or should I stay in the big 4 ? I wanna make like 500k a year but don’t know if controller allows to do that or I work towards a partner ? Thnx

[@TheFinancialController]

Both paths (partner or CFO) are good given you commit. And yes controller can nicely get you to CFO, but also some controller make 500k or more. All good choices but you gotta pay your dues sir

[@haloepic3092]

@@TheFinancialController thank you for the reply I have another question . If I work as a internal auditors how long will take me to get to controller ? 2 years or less ?

[@dennisalexander1806]

Do you use Numbers or Excel on your Apple laptop?

[@Jackod01]

Hi Bill, great video! Hypothetically if the leases are not short term, wouldn't the rental operating expenses be capitalised as a right of use assets and depreciated over the term of the lease (leaving nil rental expense, and instead a ROU asset depreciation and ROU interest expense)? Or would this only apply to the final FS? I guess for management purposes it is probably more beneficial to present the costs as COGS to get a better idea of operational performance. Would be great to get your insight on the new leases treatment from a financial controller viewpoint!! :)

[@TheFinancialController]

Thanks jack. Even if capitalized. The lease expense should be presented as CoGs since it’s directly related to food production

[@jamesstuart1792]

Hey how can I get this income tax statement you are using now ?

[@ghananshu_k3723]

While taking Gross margin, we could consider gross revenue instead of Total revenue because Total revenue consisted of Interest revenue as well

[@TheFinancialController]

Good point

[@valleycarpentry5269]

I seem to hear different opinions regarding whether labour/salaries are part of cogs or operational expenses....?..???

[@gnw8066]

Same!!

[@theteammelk]

HELP! My boss (non-accountant) thinks correcting reserves for doubtful accounts has nothing to do with the current year P&L if the reserve corrections are for revenue from years past!!

[@404TRUCKERTV]

Lol, Real world statements look way different then text book lol. In school we are taught to only put dollar signs on the top number and the final ended number double underline. And capitalize only the first word of each category.

[@TheFinancialController]

Haha yeah, thanks for watching

[@orlandolazardi9818]

It just depends at my firm we do it how you described

[@JudgeJonesSells]

With regards to the $25,000 in one month for payroll for the Operations department, how might they accrue that over time if they maybe did not know they were planning to do any sort of bonus? I guess I would just want to know how bonuses would normally be handled?

[@TheFinancialController]

You ask the HR team for bonus agreements periodically so you can create a monthly accrual

[@MB-ub4sd]

@@TheFinancialController Yeah but at our company we had the quarterly target, and don't really know until the final month if we're going to hit it or not.

[@rahuljain4346]

Whats delivery in and out?

[@TheFinancialController]

Delivery in is the delivery cost to bring in the inventory and the materials to build inventory. This cost should be part of the cost of the inventory itself. Delivery out is the cost of delivery to deliver the inventory to the customers. This cost is typically operating cost and not the cost of the inventory.

[@LoveThatRod]

SHIPPING COSTS - and unlike video presenter - Yes - Shipping is a variable cost and part of CGS. As units delivered rises and Revs arise, you want to match that rising shipping cost to that Rev. Shipping is not a fixed cost.

[@aishwaryajain5322]

Refreshed memory

[@jasminau9476]

This is a vertical analysis

[@CastroEulis145]

Is this a real income statement? How many accountants contributed to this income statement?

[@alia.al-mutawa2456]

I like your explanation and it really very useful . But I prefer you slow down the way you speak .Specially that a lot of your followers are not from native of English language. Appreciating your contribution and knowledge.

[@MB-ub4sd]

In the settings icon in bottom right hand corner you can change the speed to 75% perhaps

[@kimbolcalingayan6800]

I learned more than in school hahahah.

[@TheFinancialController]

Thanks kimbol

[@kimbolcalingayan6800]

Is that how you audit

[@TheFinancialController]

Yes this is one step in an audit

[@sreekumar990]

♥️♥️

[@jeandesirfils]

Do you have to get permission to utilize the logos in the videos? Or is it fair-use?

[@muhammadmehtabmanzar1736]

Dear You should talk about initial analytical instead of jumping into misstatements/errors. That's the only reason why Chartered Accountants from Pakistan are on top.

[@TheFinancialController]

Ok that’s a good point actually, will make a vid on that in the future

[@muhammadmehtabmanzar1736]

@@TheFinancialController Good Luck dear .... ♥️

[@alia.al-mutawa2456]

I like your video and explanation . But I prefer to slow down the way you speak . Specially for those people who are not native for English language.

[@ymonpaulo]

I find your videos interesting, but it kinda distracting if your cursor is moving from all directions.

[@jayliu645]

The background music is very distracting.

[@TheFinancialController]

Thank you for this feedback!

[@ymonpaulo]

hey guys in today's video i'm going to show you how to find mistakes or errors in a company's income statement so be jumping into my computer here i'm going to show you going through revenue and expenses line by line what are the areas that have the most frequently have accounting errors or misstatements and for example here looking at revenue you have interest income and why would a company show interest income and its operating revenue it makes no sense so we're going to go through this line by line and i'm going to show you all the accounting errors in this income statement this is the topic of this video today so stick around if you're new here welcome welcome my name is bill hannah i'm the financial controller i'm a licensed cpa in the great state of new york and i have over 15 years of experience in the field of finance what i started out at pricewaterhousecoopers as an auditor and then i transitioned out to private industry and then i worked my way up from a financial analyst position all the way up to a corporate controller position which is what i do today and this channel is all about giving you the summary or the juice of my experience over the last decade and a half and i do this here in the youtube channel as well as on my website through blog posts an online course and templates so go ahead and check that out as well all right jumping into the income statement here to try and figure out what's going on so this income statement obviously as you would imagine is broken down into revenue and then expenses and when you look at expenses it's further broken down by coastal goods sold operating expenditure and then here you have non-operating expenses which is going to be depreciation interest expense and income taxes all right so the first thing we're going to do is try and figure out what kind of company is this by looking at the income statement so looking here at the income statement you can see that they have cost of goods sold and that will tell you that this is a manufacturing company right and then within the manufacturing space you can also look further into expenses and figure out what kind of manufacturing is this so you can see here that they have food inventory cogs or food inventory cost of goods sold so this tells you this is a food manufacturing operation all right so keeping that in mind keeping in mind that this is a food manufacturing company let's go through the revenues and expenses and figure out what's wrong with this income statement so the first line here in revenue is gross unit revenue and in january is 61 000 and then it's 37 and then it's eight and then it's 11. so kind of fluctuates a lot throughout the year and normally this would be a sign that this some sort of an accounting error here or misstatement but this is a manufacturing company a food manufacturing company so it relies on receiving precious orders from its distributors to make sales right so this makes sense that it can fluctuate throughout the year if this was a subscription company or a software company this would be a different matter because then you should expect revenue to be sort of steady and not fluctuate up and down so much so in here we think this is fine for interest income now this is a manufacturing company why would it have interest income and its revenue and it makes no sense so this is the first accounting mistake here that this company is recording an interest income in its operating revenue right when is the only case where interest could be an operating revenue is if the company is a bank if this is we're looking at a financial institution