Flux analysis: thresholds, commentary and the errors it catches.
A practical guide for controllers: how to set a threshold, what good variance commentary says and how tracing one account turns an unexplained jump into a reclass.
Key points
- Use a dollar amount and a percentage together, so only changes that are large on both counts need commentary.
- Good commentary names the driver, adds up to the change, points to the entries and says whether it will recur.
- Traced to the entries, flux analysis is a control: it finds errors like an annual renewal expensed in full.
What flux analysis is
Flux analysis compares each account’s balance with a prior period and explains every change over a threshold. Controllers run it before the close is signed off, so the numbers that reach the CFO have a reason behind every movement.
It answers two questions: what moved, and is it right. The second is the one that matters.
Choosing a threshold
Most teams set a dollar amount and a percentage and ask for commentary only when a change is over both. The dollar test keeps small accounts from flooding the review; the percentage test keeps large accounts from hiding real changes.
| Account | Change | % | Over $25,000 and 10% |
|---|---|---|---|
| 4000 Subscription revenue | +$412,800 | 6.1% | No |
| 6000 Salaries | +$88,100 | 4.2% | No |
| 6200 Marketing | +$9,300 | 6.5% | No |
| 6300 Rent | +$27,000 | 33.3% | Yes |
| 6420 Repairs and maintenance | +$51,150 | 163.9% | Yes |
| 6810 Software | +$96,400 | 38.0% | Yes |
Set the threshold from your materiality and from how the numbers are used. A board package may need tighter limits on revenue and headcount than on office costs.
Watch your largest accounts separately. In the example, revenue rose $412,800, inside a 10% test, but your CFO will still want a line on it.
Which periods to compare
- Month on month: this month against last, for the close review. It catches timing differences and errors quickly.
- Year on year: this month against the same month last year, for seasonality and growth.
- Budget to actual: actuals against plan, for the CFO and the board.
Running the review, step by step
- Pull the trial balance for both periods, after the month’s adjusting entries are booked. Flux on an unfinished ledger explains changes that are about to disappear.
- Compare every account and mark each change over your threshold. Mark the rest as within threshold, so the review shows nothing was skipped.
- Investigate each flagged account by reading the entries behind it, not by guessing from the account name.
- Write the commentary and attach the entries or documents that support it.
- Book any corrections the investigation finds, then rerun the comparison so the commentary matches the final numbers.
- Review and sign off. The reviewer reads the commentary as the CFO will, and challenges anything that doesn’t add up.
Flux on the balance sheet too
Most flux reviews look only at the income statement. The balance sheet deserves the same test, because errors often show up there first.
A prepaid balance that didn’t fall when it should have, accrued liabilities that doubled or a receivable that grew faster than revenue all point at something the income statement hides. The method is the same: a threshold, the entries behind the change and a line of commentary.
What good commentary says
Commentary is for the reader who wasn’t there: your CFO, your auditors, you in three months. A good explanation does four things.
- Names the driver: a renewal, new hires, a new lease.
- Quantifies it, so the drivers add up to the change.
- Points to the entries or documents behind it.
- Says whether it will recur next month.
Weak
Software up due to timing.
Strong
Up $96,400 (38.0%) on August. $84,000 is the Brightline Data annual renewal, billed Sep 8 and expensed in full. The rest is 312 new Figma seats from Sep 14.
Common mistakes in commentary
- Restating the number. “Software increased by $96,400” says what the report already shows.
- “Timing” with no detail. Timing is a reason only when it names what was early or late and when it will reverse.
- Drivers that don’t add up. If the explanation covers $60,000 of a $96,400 change, the rest is still unexplained.
- No view on next month. The CFO’s first question is whether it happens again.
A worked example: when the variance is an error
In the example, 6810 Software rose $96,400 on August. Tracing the account’s September entries shows where it came from.
| Entries in September | Date | Amount |
|---|---|---|
| Brightline Data, annual renewal | Sep 8 | $84,000 |
| Figma, 312 new seats | Sep 14 | $12,400 |
| 10 monthly subscriptions | Through the month | $253,600 |
| September total | $350,000 |
The monthly subscriptions match August exactly, so the change is the two new items. The seats are a real increase. The renewal isn’t: it covers October 2026 to September 2027, so it belongs in prepaid.
The fix is a reclass of $84,000 to 1420 Prepaid, amortized at $7,000 a month from October. After it, Software is up $12,400 (4.9%) and no longer needs commentary.
The errors flux analysis catches
- Prepaid items expensed in full, like annual renewals and insurance premiums.
- Capital purchases coded to expense, like equipment booked to repairs and maintenance.
- Missing, duplicated or unreversed accruals.
- Costs posted to the wrong period or the wrong entity.
- Revenue recognized ahead of delivery.
How agents change flux analysis
Flux is usually written last, the night before review. Zenday’s Flux agent compares every account the night the month ends, traces each variance over your threshold to the entries behind it and drafts the commentary.
When the explanation is an error, the correction comes as a proposed entry with its support, sent to whoever approves it. See flux analysis in Zenday.
In ZendayFlux analysisEvery variance over your threshold traced to its entries, with the commentary drafted before review.