If ever there was a place where engineering meets the business world, this would be it. So what has BI got to do with the Accounting Equation? What is the accounting equation anyway? This
link explains it well.
The basic accounting equation is as follows.
Assets = Liabilities + Owner's Equity
Assets and Liabilities are clear enough. But what is owner's equity? So we expand it to be more meaningful.
Assets = Liabilities + (Paid-in Capital + (Revenues – Expenses) – Dividends – Treasury Stock)
Assets-Liabilities = Paid-in Capital+(Revenue-Expenses)-Dividend-Treasury Stock
There is a little caveat. While Assets, Liabilities, Paid-in-Capital, and treasury stock are a point-time, revenue and expense are for a period. So Revenue and Expenses have to be at a point-in-time as well which is typically year-to-date. Dividends are slightly different but they need to be Year to Date as well.
Revenue-Expense is actually Net Income but you have to use the year to date metric.
So a dashboard which looks as follows will give a lot of confidence to the accounting and finance staff as it meets the accounting equation requirement.
Metric | Period Type | Amount |
Assets | YTD | 300 |
Liabilities | YTD | 250 |
Assets-Liabilities | YTD | 50 |
Paid-in Capital | YTD | 100 |
Revenues | YTD | 100 |
Expenses | YTD | 80 |
Dividends | YTD | 20 |
Treasury Stock | YTD | 50 |
Paid-in Capital+(Revenue-Expenses)-Dividend-Treasury Stock | YTD | 50 |
In this case, the assets less the liabilities equal the total of Paid-in Capital+(Revenue-Expenses)-Dividend-Treasury Stock. In any case, the accounting staff is going to check these numbers on their favorite calculators.
So from a BI perspective, if you can design a high level dashboard that meets this requirement, you have won the trust of the accounting and the finance people. It makes the reporting meaningful and it saves a lot of trouble. You could actually test your dashboards for Financial accounting data with this simple equation.
When I build these dashboards, I use this to ensure that I QA the data and if it does not add up, you know you have work to do.