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How To Create Your Financial Statements Like A Red-Blooded American

The first time I implemented ByDesign, I was introduced to the concept of reporting your Income Statement ‘by Function of Expense.’

My first reaction was like HUH?

This is AMERICA bro, and we report our P&L’s (not Income Statements) by a GL Account tree (not a weird structure by Function of Expense).


Not only was this weird ‘Function of Expense’ concept being pushed on me, but the default Financial Statements in ByD REQUIRE you to produce your income statement in this un-American fashion. Right then and there I decided I’d find a workaround, because this is America, and I have the freedom to workaround whatever I want, damn-it.

Side-note: Here is what Nancy Pelosi has to say about Income Statements by ‘Function of Expense’:


So here is that workaround, step by step. Open up a can of Bud, crank up the Classic Rock station on your FM radio, and learn how to produce your financial statements like a red-blooded American.

Note #1: I finally googled ‘Function of Expense’ like a month ago and it seems to be a valid concept in US GAAP. I don’t care though, because I have produced financials for literally dozens of companies (even ones in China) using some sort of GL account structure.

Note #2: None of what you are about to see is real or confidential data.

Here we go:

1. Navigate to Business Analytics > Design and Assign Reports. Find the Financial Statements report. Select New > Report as Copy

2. Rename the report to Financial Statements – by G/L Account Structure

3. In Characteristic Properties, select GL Account, and change the Hierarchy value to Fixed Hierarchy

5. In Define Variables, select Financial Reporting Structure

6. Change the Financial Reporting Structure value to I/S by Function of Expense

10. Click OK, and click GO. Now you have an Income Statement by GL Account Structure

God bless America.

God bless us, every bro.


Follow me on Twitter @JudsonOnDemand

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  • Hi Judson,

    I’ve no idea what you’re talking about (though you sure seem to understand this stuff), but I love your style of writing, bro!

    Cheers, Fred

  • Hi Judson,

    It’s great discussing this topic with another practitioner…

    My take on this topic is that following the usual red-blooded American way of coding the necessary information into the G/L accounts results in unnecessarily bloating the chart of accounts.

    Also in ByD the G/L account gives hint to the question ‘what kind’ of e. g. expenses have occured. Therefore you will e. g. have a ‘salary’ account.

    Applying an account-only approach you e. g. need to have a ‘salary for administration’ as well as a ‘salary for marketing’  account if you want to distinguish ‘general and administrative expenses’ as well as ‘sales and marketing costs’ in your income statement.

    Alternatively, and this is what we suggest, you could also use a single ‘salary’ account and, depending on e. g. the cost center the salaries were expensed to, assign the respective functional area ‘Administration’ or ‘Marketing’ and use these when structuring your income statement.

    Of course we’re always striving for simplifaction and thus are having some ideas in the drawer already for evolving this topic. Therefore receiving your feedback is always welcome.

    Best regards,


    • Whoa there, I do not ever advocate the bloating of the chart of accounts. But each GL account mapping to Function of Expense has to be maintained, which is a huge pain.

      This is why we have other beautiful things like Cost Centers, Profit Centers, Product Categories, and Products. Going beyond a ‘fully qualified’ GL string (Peoplesoft lingo) into Function of Expense territory isn’t worth the administrative overhead.

      Per your example, Administration and Marketing should be separate Cost Centers and hence there is no need for a separate salary account. In my implementations I typically add just a handful of GL Accounts because evert business is ‘special’.

      Another un-American thing about Financial Reporting Structures is the Balance Sheet. Why maintain this when you can maintain a single Account Structure.

      Again, I have produced financial statements for some of the world’s largest companies and I have never once used ‘Function of Expense’ as my method. They seem to be producing their Financial Statements just fine. Or at least the SEC thinks so.

      • Please don’t get me wrong.

        All I was stressing is that, when using a single account for expenses that possibly occur in multiple sections of your P&L, you have to do the assignment by some additional information.

        In ByD this currently is the ‘Functional Area’.

        I’m really no friend of this entity either and could imagine better options, too.

        You’ve already mentioned some.

        But at least for the time being there is no escape from this catch.

          • Absolutely, using G/L Accounts and Cost Centers was a solution – partly at least.

            We then still only had to deal with issues arising from processes that don’t affect cost centers, e. g. a free samples shipment triggered form a sales order but anyway totalling up in your marketing expenses section.

            So, after all, I guess we both agree in deeming ‘functional areas’ an artificial entity.
            However, my additional take on this still is that given the current (also technical) possibilities it’s at least a working solution.

            Btw – your statement ‘noone in the US uses Function of Expense’….

            Is it just a wording issue that baffles me here?

            I browsed a few papers again. The first that came up was the following from E&Y$FILE/US%20GAAP%20v%20IFRS%20Dec%202011.pdf

            On the very bottom of page 4 you find ‘SEC registrants are required to present expenses based on functions (e.g. cost of sales, adminitrative)’. How would you label the ByD ‘.. by Function of Expense’ instead – for a non-red-blooded American?

          • Everyone uses the method…without really knowing it. It’s just standard accounting and reporting.

            Doesn’t mean they produce the statements using function of expense. They use account roll-ups.

            RE: Marketing expenses…Product

          • Also, all I care about is improving ByD. Every single one of my customers have abandoned the Function of Expense method of reporting, as have dozens of others from what I’ve heard. Its the #1 complaint in the reporting area.

  • Hu Judson,

    a few questions, if i may…

    is this a case of US GAAP by condorsement of IFRS?

    will you have BS and Cash Flows as well?

    why not flip the sign to show revenues as positive and costs and expenses as negative numbers?

    it will all roll up into one fat EPS, won’t it?

    it won’t matter until mapped to 1120, will it?

    thx, greg

    • This principle is valid in US GAAP as well as IFRS, but it’s maintenance heavy. This is why I think the SAP ‘best practice’ is wrong, and GL Account structures should be used for the P&L and Balance Sheet. Cash Flow is obviously different but that still leaves you just two reporting structures instead of the 10 that SAP calls ‘best practce.’

      Note: Every customer I have used this workaround with has been jazzed, stoked, and enthused by the result.

      • Judson,

        no need to get patriotic about it. i have checked FASB and wikipedia articles in English and German, and there seems to be no clear answer as to which method is better or preferred.

        i do think you are doing SAP a favor by converting out-of-the-box cost of sales reports into periodic ones. they seem to differ only in emphasis, former stresses when and the latter how we we calculate the net profit and we both know that P&L is matter of opinion and the easiest statement of all three to be adjusted for this or other reason (investment, tax, management, etc.). as long as we keep LIFO and write-ups out of scope we should be able to reconcile it back and forth for whichever audience the statement is addressed to.

        i’m glad to read that your customers are happy with your statement design.



  • Hey Judson,

    Thanks for offering the workaround !

    Could you please let me know how could I map this income statement by  G/L. Eg after I create a new G/ L account and I need to map it to certain section . What should I do ? Where can I assign and map accounts ?

    Please let me know !

    Thanks !