Improving the image of numbers.If a picture can replace a thousand words, how many numbers could a picture replace? Typically, in the blink of an eye a financial report reader can absorb the good news from a soaring graph showing company profits rising sharply. But although it would take considerably longer, even for someone with a practiced eye, to absorb the same information from a column of numbers, few accountants harness the power of graphics to illustrate the message behind their numbers. NAKED NUMBERS The use of graphics in financial reports not only speeds a reader's comprehension of complex data but enhances it by emphasizing trends and changes. Many people, including chief operating officers Chief Operating Officer (COO) The officer of a firm responsible for day-to-day management, usually the president or an executive vice-president. and other managers, have difficulty spotting trends and changes if all they see is a naked column of numbers. Do most managers want their data enhanced with graphics? Consider this: How many times have you heard a manager say, "Spare me the details; just give me the big picture." Such people are likely to appreciate even a small picture. Does that mean accountants need to become graphic designers? Hardly. Computers are making it easy to convert numbers into pictures. The trend is evident in new Windows application A program that is written to run under Microsoft's Windows operating system. Such applications typically run under all 32-bit versions of Windows, but earlier applications might also run under the 16-bit versions (Windows 3.x) as well. See Windows. software, which is engineered with graphics in mind. For example, even low-cost personal finance software such as Quicken can easily convert numerical data Numerical data (or quantitative data) is data measured or identified on a numerical scale. Numerical data can be analysed using statistical methods, and results can be displayed using tables, charts, histograms and graphs. on income and expenses, budget variances, net worth and investments into easy-to-read graphs. All the Windows-based spreadsheets can, with a click of a mouse, convert their numbers into a wide assortment of graphic configurations--from a line to a pie graph. Let's look at the types of graphs that could be included in most reports and see how current technology can convert a dull numbers-only report into a presentation that converys its information with panache--and no loss of professionalism. THE BIG PICTURE The summarized financial information for our fictitious Based upon a fabrication or pretense. A fictitious name is an assumed name that differs from an individual's actual name. A fictitious action is a lawsuit brought not for the adjudication of an actual controversy between the parties but merely for the purpose of company, ABC ABC in full American Broadcasting Co. Major U.S. television network. It began when the expanding national radio network NBC split into the separate Red and Blue networks in 1928. Distributing Company, will be used to illustrate the type of charts commonly used in financial reports. Exhibit 1 shows the company's income and loss statement in numerical format. We will then show how it can be illustrated graphically--with much more impact. [TABULAR DATA OMITTED] Simple column charts (exhibit 2), the most common in financial reporting, are the easiest to understand. They are excellent for showing the values of one or more items at specific times or comparisons among different items. The x-axis, or the horizontal scale, generally is used for the independent variable, such as time. The y-axis, the vertical scale, is used for the dependent variable, generally the dollar amount in financial reporting. [ILUSTRATION OMITTED] Pie charts A graphical representation of information in which each unit of data is represented as a pie-shaped piece of a circle. See business graphics. (exhibit 3) are excellent for showing the relative portions of individual parts to the whole. A significant element can be highlighted by "exploding" that particular slice of the pie. An effective pie chart would show no more than five elements five elements, n.pl fire, water, earth, wood, and metal; in Chinese medicine, each of these five components is used to organize phenomena for use in clinical applications. Each of the elements corresponds to a specific function (i.e. , each labeled and showing the percentage of total. Example: percentage of sales by product for the year 1993. [ILLUSTRATION OMITTED] Stacked column charts (exhibit 4), also known as subdivided column charts, are appropriate for showing several sets of data and their contribution to the whole over time. In other words Adv. 1. in other words - otherwise stated; "in other words, we are broke" put differently , a stacked column chart depicts a series of items and their component parts over time. Example: sales by product (y-axis) from 1989 through 1993 (x-axis). [ILLUSTRATION OMITTED] Line charts (exhibit 5) are useful for showing trends in data and for comparing different sets of data, particularly over an extended period. More than one line may be plotted on the same chart for comparison as long as the data presented by each line bear some relationship to the other data shown. Sales, cost of sales, operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. and net income over a five-year period are shown in this example. [ILLUSTRATION OMITTED] Grouped column charts (exhibit 6) show two or three touching columns representing different items in the same series. The columns are grouped along the horizontal axis and either joined together, overlapped or separated by a narrow space. In this example sales, cost of sales and gross profit are grouped by year. [ILLUSTRATION OMITTED] Simple bar charts (exhibit 7) are similar to a column chart except that the x-and y-axes are reversed. The dependent variable, such as sales, is shown on the horizontal axis. In this example, the dollar amount of sales by product is illustrated. [ILLUSTRATION OMITTED] Area fill charts (exhibit 8), sometimes called surface charts, are generally used to show differences in volume of data over time. They resemble a line chart, but instead of showing data points connected by a line, an area chart shows the areas between the data lines filled or colored in. It's best to limit the chart to four data lines. [ILLUSTRATION OMITTED] Overlay charts (exhibit 9), also called double y-axis charts, are useful for showing more than one kind of data or data that have significantly disparate values, such as sales and net income. The y-axis on the left shows one set of values and the y-axis on the right shows another. The overlay chart is not easily grasped at first glance and generally requires more study than a simple bar or line chart. In this example, gross sales Gross Sales A measure of overall sales that isn't adjusted for customer discounts or returns, calculated simply by adding all sales invoices, and not including operating expenses, cost of goods sold, payment of taxes, or any other charge. , on the left axis, are compared with net income, on the right axis, from 1989 through 1993. [ILLUSTRATION OMITTED] PICKING THE RIGHT CHART The following table summarizes the more common chart forms and when each can be used most effectively: Message Column Bar Surface Pie Specific amounts depicted * * Size of several items compared * * Trends over time displayed * * * Proportionate relationships shown * * * * A 1993 study by the Canadian Institute of Chartered Accountants The Canadian Institute of Chartered Accountants (CICA) is the umbrella body for the Chartered Accountant profession in Canada and Bermuda. Membership of the CICA totals 70,000 Chartered Accountants and 8,500 students. that called for standards, consistency and an orderly approach to presenting financial information graphically listed several conventions for designing effective chart graphics: * Titles and labels: Follow a consistent style for each graphic. Arrange all lettering horizontally so it's easier to read. Use upper and lowercase letters lowercase letter n. A letter written or printed in a size smaller than and often in a form differing from its corresponding capital letter. [From their storage in the lower of two trays used by compositors.] because sentences with all capital letters are harder to read. Include a precise title for each graphic and add descriptive labels and legends. * Scales: Keep them in proportion, with the independent variable on the horizontal scale and the dependent variable on the vertical. Include scale lines and points. Avoid multiple scales (split the graphic into two charts instead) and nonarithmetic scales (that is, using icons to represent the item being measured). Don't overdo use of grid lines. Round off numbers for scale figures. Provide a clear zero baseline when possible. * Spacing: Make the width of data markers uniform, spacing them evenly and in proportion. * Shading See Phong shading, Gouraud shading, flat shading and programmable shading. and color: Keep the design simple. When displaying lines on a line chart, make sure one is clearly distinguishable from another. Don't use too many colors. * Chart background: Use either white or a light color. * Data display: Someplace some·place adv. & n. Somewhere: "I didn't care where I was from so long as it was someplace else" Garrison Keillor. See Usage Note at everyplace. in the presentation provide the data on which the chart is based. Where possible, begin data markers at zero baseline. Position negative and positive numbers on opposite sides. Position figures at top of columns or at the end of bars. ASSESSING THE OPTIONS Few write-up or yearend trial balance software packages produce acceptable graphs from the underlying data. The only way to include graphs when working in these programs is either to export data from one application to another or to rekey Rekeying is the process of changing a lock's tumblers to work on a different key than the current one. Though often referred to as 'changing a lock', rekeying does not require replacement of the lock itself, but resetting the tumbler combination to fit a different key. financial data into the graphics application. Neither way is ideal, so here are a number of other options: * Standalone graphing packages are geared toward presentation graphics--thus, they are not ideally suited for financial reporting. * Spreadsheets, especially those written for the Windows environment (1) (upper case "W") Refers to computers running under a Microsoft Windows operating system. (2) (lower case "w") Also called a "windowing environment," it refers to any software that provides multiple windows on screen such as Windows, Mac, Motif and X Window. , provide graphing capabilities that were unimaginable just a few years ago. The latest generation, such as Microsoft's Excel, includes modules that provide step-by-step guides through the more complex processes. Microsoft calls its help modules Wizards. Once a graph based on the spreadsheet data is created, it remains linked to the source data and is updated as the data are modified or added. Setting up the format requires some initial planning, but it's well worth the effort. Once the format is designed, it'll generate graphs for monthly write-up clients as soon as the underlying data are changed. As financial information is to be updated monthly, a blank column should be included in the data range. As each new month is added, it's simple to insert a new column between the last filled column and the blank one to contain the current month's figures. The associated graph will expand to include the new period's data. Because financial graphs are data-driven and spreadsheets provide powerful math functions with the option of having the chart embedded Inserted into. See embedded system. and presented along with the data, they work extremely well as a team. Also, once an effective chart has been formatted, a template can be created and copied into any subsequent spreadsheet file. * Many popular accounting packages--including lowcost products--now integrate graphics with the accounting data. As a result, graphs can be generated for each period along with journals, the general ledger General Ledger A company's accounting records. This formal ledger contains all the financial accounts and statements of a business. Notes: The ledger uses two columns: one records debits, the other has offsetting credits. and the basic financial statements. * Several presentation software programs contain extensive charting capabilities. For example, Microsoft's PowerPoint has an Excel-like graphics-creation tool. Corel Draw on CD-ROM CD-ROM: see compact disc. CD-ROM in full compact disc read-only memory Type of computer storage medium that is read optically (e.g., by a laser). is bundled with Corel Graph and an extensive clip-art library of more than 22,000 images and symbols. GETTING IT ON PAPER It's one thing to generate the graph on the computer; it's something else to print it. Therefore, the printer choice is vital. While a full discussion of printer options is beyond the scope of this article, here are a few things to note: * Graphs worthy of inclusion in financial reports should be prepared on either a laser or ink-jet printer or a plotter--in black and white or color. Just as creating and displaying graphs on a computer requires an ample amount of random access memory (RAM) in the computer, printing graphs taxes the printer's RAM, too. While 1 megabyte One million bytes, or more precisely 1,048,576 bytes. Also MB, Mbyte and M-byte. See mega and space/time. (unit) megabyte - (MB, colloquially "meg") 2^20 = 1,048,576 bytes = 1024 kilobytes. 1024 megabytes are one gigabyte. (Mb) of printer memory will be sufficient for simple graphs, 2 Mb or more are needed as the complexity increases. * If you use color, remember that more is not necessarily better. The idea is to convey a message to the user about financial information, not to overwhelm or dazzle daz·zle v. daz·zled, daz·zling, daz·zles v.tr. 1. To dim the vision of, especially to blind with intense light. 2. . * PostScript laser printers, although slightly more expensive, may be justified for graphics. Many jobs that once required a commercial print shop now can be done in-house with a PostScript laser printer and a little imagination. * Ink-jet printers are a relatively inexpensive alternative to the laser printer, although considerably slower. Good black-and-white ink-jet printers are available for about $250; color models See color space. color model - colour model cost about $600. Laser color printers A printer that prints in color using three (CMY) or four (CMYK) colors of ink, toner or dye. Four color ribbons have been used in dot matrix printers, but these are rare today. See color laser printer and printer. , by comparison, cost around $3,000. * The plotter, while once popular as a graphic printer, is being replaced by the faster, more flexible laser printer. * Be aware that all color printing “colour separation” redirects here. For other uses, see colour-separation overlay. Color printing is the reproduction of an image or text in color (as opposed to simpler black and white or monochrome printing). is slow. Instead of being measured in pages per minute, color output is more appropriately measured in minutes per page. But speed improvements are on the horizon. * Graphics printing can best be done with a fast computer (minimum 486, 66 megahertz One million cycles per second. See MHz. MegaHertz - (MHz) Millions of cycles per second. The unit of frequency used to measure the clock rate of modern digital logic, including microprocessors. , 8 Mb RAM). In addition, a quality VGA (Video Graphics Array) The display standard for the PC. All PC display adapters support VGA, and Windows machines boot up in "VGA mode" before switching to higher resolutions. or Super VGA See VGA and PC display modes. Super VGA - Super Video Graphics Array monitor and a video card with at least 2 Mb of VRAM See video RAM. VRAM - video random-access memory are essential for displaying high-resolution graphics at reasonable speeds. It doesn't do much good to buy a fast computer and have the video bus become the processing bottleneck A lessening of throughput. It often refers to networks that are overloaded, which is caused by the inability of the hardware and transmission lines to support the traffic. It can also refer to a mismatch inside the computer where slower-speed peripheral buses and devices prevent the CPU . * Graphics files consume huge chunks of hard disk space. Fortunately, prices for disk drives have fallen, so it's wise to buy more disk space than you think you'll need. A good rule of thumb is to buy at least twice the hard disk space you think you'll need. * Scanners are useful for copying clients' logos for inclusion in the clients' financial statements, and they come in handy Verb 1. come in handy - be useful for a certain purpose be - have the quality of being; (copula, used with an adjective or a predicate noun); "John is rich"; "This is not a good answer" for scanning pictures and other information to be included in newsletters, brochures or other marketing materials. PICTURE THAT Since the point of financial reporting is to convey a message, it's important to think graphically. Pictures get a point across quickly and easily. And if properly constructed, they command attention. Remember, too, that the reader uses different perception skills in examining financial data in various formats. What may be missed in one could be easily grasped in another. To communicate effectively, accountants must find ways to simplify and summarize complicated and extensive numerical data to enable the user to picture the results. Graphs presented in conjunction with traditional tabular statements will foster a better understanding of financial condition and operating results and will engender en·gen·der v. en·gen·dered, en·gen·der·ing, en·gen·ders v.tr. 1. To bring into existence; give rise to: "Every cloud engenders not a storm" greater appreciation for CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. services. RELATED ARTICLE: EXECUTIVE SUMMARY * CPAs SHOULD RECOGNIZE that financial report readers can absorb the good news from a soaring graph that shows company profits rising sharply much faster than if they had to figure out the message from a column of numbers. Yet few accountants harness the power of graphics to illustrate the message behind their numbers. * THE USE OF GRAPHICS in financial reports not only speeds a reader's comprehension of complex data but enhances it by emphasizing trends and changes. * MANY PEOPLE, including chief operating officers and other managers, have difficulty spotting trends and changes if all they are given is a naked column of numbers. They would welcome graphics that gave them "the big picture." * COMPUTERS ARE making it easy to convert numbers into pictures. The trend is most evident in new Windows application software, which is engineered with graphics in mind. RELATED ARTICLE: How to Get the "Big Picture" If you want financial statement graphics to show the "big picture," sometimes conventional charts just won't do as they can show only selected elements. Enter Irwin M. Jarett, CPA, a former professor of medical economics. An early advocate of the use of graphics to enhance financial statements, Jarett was dissatisfied with the graphical formats available, so he invented his own, which debuted in the Journal of Accountancy in May 1981, page 46: "Computer Graphics: A Reporting Revolution?" There hasn't been much of a revolution and very little evolution in the 14 years since his article appeared, but Jarett has not given up. He has since written one of the definitive books on the subject, Financial Reporting Using Computer Graphics, published by John Wiley John Wiley may refer to:
Most charts show only selected elements of a financial statement, but the Jarett chart uses a series of horizontal floating bars to represent the individual and relative values of all balance sheet accounts. Assets are shown to the left of center, with liabilities and equity to the right. This representation aids the reader in assessing the relationship of the individual amounts to the total (exhibit 10). [ILLUSTRATION OMITTED] For example, by examining the lengths of the bars representing cash, accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying , inventory and other, the viewer can see that, when added together, they equal the length of the bar representing total current assets Current Assets Appearing on a company's balance sheet, it represents cash, accounts receivable, inventory, marketable securities, prepaid expenses, and other assets that can be converted to cash within one year. . |
|
||||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion