110 HASKINS & SELLS December
By J . M . PALEN, of the New York Office
A COMPARATIVE statement is one
which shows the figures at one date
or for one period and the increases and
decreases therein as compared with the
figures at another date or for another
period, which may or may not themselves
Undoubtedly, many opportunities for
valuable service to our clients have been
lost through failure to show such comparisons
in our reports. In our concern
over the verification of figures we sometimes
forget that the most important function
of all statements is to serve as a guide
in the administration of business.
To an executive the comparative balance
sheet is invaluable. From it he may
read not only the present financial condition,
but the general trend of his business.
Among other things, it draws attention to
(1) relative efficiency of the financial management,
as evidenced by changes in current
assets as compared with current liabilities;
(2) an unwarranted increase in the
amount of accounts receivable, which may
be due to careless granting of credits, poor
collection methods, or to a general credit
stringency, the latter being warning to the
client to provide against the day when his
own liabilities mature; (3) increases or
decreases in the amount of merchandise
stock on hand, which may indicate whether
stock is moving less rapidly or more rapidly
than in prior periods.
Equally valuable for administrative purposes,
if not more so, is the comparative
statement of income and profit and loss.
The client is of course interested in changes
in his financial condition, but he is even
more interested in knowing how those
changes came about. If he has increased
his profits he wants to know whether he
did so by reducing costs, or selling expenses,
or administrative expenses, or by
an increase in the volume of business done.
If he has met with a loss he is even more
interested in knowing the reasons therefor.
A comment to the effect that the ratio of
selling expenses to net sales has increased
10.64 per cent. is not only more interesting
but vastly more valuable to him than the
knowledge that the aggregate of the balances
of the accounts receivable is $4.72
less than the controlling account in the
In statements to be used for financial
purposes comparisons are even more important,
for frequently the banker has no
other means of knowing whether the
client's position is improving or the reverse.
Two advantages in the use of comparisons
accrue directly to the accountant.
First, they draw attention to matters which
should be investigated. Unusual increases