In the intricate realm of finance and accounting, the Profit & Loss (P&L) statement stands as a testament to a company’s financial performance. However, creating an accurate P&L dashboard can be a daunting task, especially when dealing with the many-to-many relationships that arise from sales transaction postings. This article aims to shed light on this challenge and offers strategies to navigate it effectively.
Example: The Complexity of Sales Transaction Postings
Sales transactions are the lifeblood of any business, reflecting the revenue generated from goods or services sold. However, these transactions don’t just impact one line on the P&L statement. They ripple through various lines, from Gross Profit to Operational Profit, and down to Net Profit. Each sale can influence multiple financial metrics, creating a web of interconnected data points. This many-to-many relationship between sales transactions and P&L lines poses a significant challenge when designing a clear and insightful P&L dashboard.
Why is this a Problem?
The issue arises as a single sales transaction affects multiple lines on the P&L report. In building a data model it is important that relationships have a clear path to follow in order to ensure data is not duplicated, best-practice for data is that there is always a many-to-one path to follow (think many sales being attributable to one customer, now what if each sale had many customers?)
This issue is compounded when there are more complexities to the sale: For instance, a sale might include revenue, discounts, returns, and cost of goods sold. Each of these elements might be posted to different lines on the P&L, making it challenging to track and represent the full impact of sales transactions accurately if the underlying data is not modelled correctly. How can you get to a final net income if the transactions for cost of goods sold are duplicated or triplicated?
What can be done about it?
Despite the rise of “data” and the high-impact insights now available, the P&L has been the cornerstone of financial reporting, developed by countless accountants since Pacioli first published the bookkeeping method in 1494 under “Summa de Arithmetica, Geometria, Proportioni et Proportionalita” [1] – so it will likely be around for a few more decades.
If you want to model your reporting into a P&L and be able to take it from Gross Margin to the related metrics, or underlying insights, take a look at our P&L and see how this can be done without compromising the data.
