Account Analysis Definition: What it Means, Examples

What Is Account Analysis?

Account analysis is a process in which detailed line items in a financial transaction or statement are carefully examined for a given account, often by a trained auditor or accountant. An account analysis can help identify trends or give an indication of how a particular account is performing.

Account Analysis Explained

Financial statement analysis is the process of analyzing a company's financial statements for decision-making purposes and to understand the overall health of an organization. Financial statements record financial data, which must be evaluated through financial statement analysis to become more useful to investors, shareholders, managers, and other interested parties.

In cost accounting, this is a way for an accountant to analyze and measure the cost behavior of a firm. The process involves examining cost drivers and classifying them as either fixed or variable costs. The cost accountant then uses the company's data to figure out the estimated variable cost per cost-driver unit or fixed cost per period.

When it comes to banking, account analysis takes the form of a periodic statement outlining the banking services provided to a firm. The statement is usually provided monthly and involves the display of all important account data, including the company's average daily balance and charges that the company incurs from the bank.

Account Analysis in Accounting and Banking

In accounting, account analysis is quite complex and involves an in-depth understanding of both the data and the company. It is usually performed by an experienced cost accountant, possibly with the help of one of the company's managers, who deals closely with the company's costs.

In banking, you can think about account analysis as similar to the statements you receive for your personal bank accounts. Since it is for a company account, however, it is much more detailed and on a larger scale.

Vertical Analysis vs. Horizontal Analysis

While horizontal analysis looks at how the dollar amounts in a company’s financial statements have changed over time, vertical analysis looks at each line item as a percentage of a base figure within the statement. Thus, line items on an income statement can be stated as a percentage of gross sales, while line items on a balance sheet can be stated as a percentage of total assets or liabilities, and vertical analysis of a cash flow statement shows each cash inflow or outflow as a percentage of the total cash inflows. Vertical analysis is also known as common size financial statement analysis.