Financial Analysis Articles in Torgsoft: How to Configure the Revenue and Expense Structure for Accurate Accounting

Financial Analysis Categories: How to Build an Income and Expense Structure

A store may generate strong sales revenue, yet at the end of the month, the owner may not understand where the money has gone. Some of it was paid to suppliers, some went toward salaries, rent, advertising, and bank fees, while another portion was withdrawn by the owner for personal needs. To see not only the cash register balance but also the structure of cash flows, Torgsoft uses financial analysis categories.

What Are Financial Analysis Categories?

A financial analysis category shows why money was received or spent.

For example, selling goods is associated with the Sales Revenue category, paying for purchased goods is associated with Settlements with Suppliers, and transferring money from a cash register to a bank account is associated with Internal Transfers.

Torgsoft provides key categories that the software uses for the corresponding transactions: Sales Revenue, Settlements with Suppliers, Internal Transfers, Bonus Withdrawal, Bank Fees, Currency Exchange, Salary and Acquiring. You can add your own subcategories to them. 

For example, the general Salary category can be broken down into:

• base salaries;

• bonuses;

• piece-rate pay;

• other employee payments.

This allows the owner to see both the total amount for a category and its breakdown.

Cash Flow and Profit Are Not the Same Thing

This is the fundamental rule of financial analysis.

If a store pays a supplier UAH 100,000 for a new shipment of goods, its bank account balance decreases by UAH 100,000. However, that money has not simply disappeared: the business has received inventory in exchange.

Therefore, paying a supplier is a cash flow transaction, but not an ordinary operating expense like rent or salaries. In Torgsoft, settlements with suppliers are not included in expenses in the same way. 

Similarly, transferring UAH 30,000 from a store's cash register to its bank account does not make the business richer or poorer. The money has simply moved to a different location. Such transactions use the Internal Transfers category.

Therefore, the category tree should be structured according to the economic nature of each transaction, rather than the principle that «everything leaving the cash register is an expense».

Which Categories Should Be Classified as Expenses?

When creating a custom category in Torgsoft, there is an Include in Expenses option. When enabled, transactions assigned to that category are included as business expenses when calculating profit.

For a typical store, these categories may include:

There is no need to create a separate category for every small purchase. If a store buys paper today, pens tomorrow, and batteries the day after, it is usually sufficient for business management purposes to group these purchases under General Operating Expenses.

This also reduces errors: the more similar categories there are, the more often identical expenses end up being assigned to different categories.

What a Store's Category Tree Might Look Like

For a small or medium-sized retail business, the following structure may be practical:

The system categories remain the foundation of this structure. Custom branches provide the level of detail that matters specifically to your business.

Purchasing an expensive refrigerator, cash register equipment, or renovating premises should be tracked separately from regular monthly expenses. This prevents a large one-time purchase from obscuring trends in the store's ordinary expenses. The method for accounting for such investments when calculating management profit should be agreed upon once with the person responsible for finances and then applied consistently.

Keep the Owner's Personal Money Separate

One common source of confusion is when the owner withdraws money from the cash register or uses a business card for personal needs.

For example, a store earns money, and the owner uses the business card to pay for a personal purchase. If this transaction is recorded under «General Operating Expenses», the report will indicate that the store spent the money on its operations. This distorts the financial picture.

Torgsoft documentation provides a separate general balance category called «Dividends» for such transactions. It can be broken down further if necessary, but for store management purposes, it is often sufficient to see the total amount withdrawn by the owner for personal needs. 

These transactions should not be mixed with rent, advertising, salaries, or other expenses related to running the store.

How to Configure the Category Tree in Torgsoft

First, open Settings → Parameters → Financial Analysis and check the key categories used by the software.

To modify the tree, open Payment → Balance by Financial Analysis Categories → Edit. You can add and modify categories and arrange them into a hierarchy of subcategories. 

To create a new category:

1. Select the parent category.

2. Add a category and give it a clear name.

3. If it is an operating expense, enable Include in Expenses.

4. Determine whether the category should affect the balance with a business partner.

In Torgsoft, balance-related categories affect settlements with business partners, while non-balance categories do not. If a category is designated as balance-related, the Include in Expenses option becomes unavailable. 

For rent, advertising, or communications, business owners usually need to see the amount spent rather than the debt owed to a specific partner. For settlements with suppliers, on the other hand, the status of outstanding balances is important.

Do Not Give Cashiers Unnecessary Access to Financial Categories

Cashiers need access to the categories they use in their daily transactions. They do not necessarily need to see the company's entire financial structure.

Torgsoft allows you to restrict a user's access to financial analysis categories. This means the owner can make only the categories required for the employee's work available to them. 

This makes it easier to select the correct category and reduces accidental errors.

Example: What a Store's Financial Analysis Will Show

Consider a hypothetical clothing store with the following monthly figures:

• sales — UAH 500,000;

• cost of goods sold — UAH 280,000;

• payments to suppliers — UAH 300,000;

• salaries — UAH 70,000;

• rent — UAH 40,000;

• advertising — UAH 15,000;

• utilities — UAH 8,000;

• acquiring fees — UAH 7,500;

• bank fees — UAH 1,200;

• money withdrawn by the owner for personal needs — UAH 25,000;

• UAH 100,000 transferred from the cash register to the bank account.

Looking only at cash flows, you might see substantial outflows: UAH 300,000 to suppliers, UAH 141,700 in operating expenses, and UAH 25,000 withdrawn by the owner.

However, this does not mean the store has made a loss.

Of the UAH 500,000 in sales, UAH 280,000 represents the cost of goods sold. Therefore, the gross profit in this simplified example is UAH 220,000.

Regular operating expenses totaled: 70,000 + 40,000 + 15,000 + 8,000 + 7,500 + 1,200 = UAH 141,700. This leaves UAH 78,300.

At the same time:

• the UAH 300,000 paid to suppliers should not be deducted a second time as ordinary expenses: some of the purchased goods may still be in stock;

• the UAH 100,000 transferred between the cash register and the bank account is an internal transfer, not an expense;

• the UAH 25,000 withdrawn by the owner is a separate withdrawal of money from the business, not a store expense related to selling goods.

That is why cash balances, cash flows, and profit should be analyzed separately.

Why Profit in a Report May Differ from the Money in the Bank Account

In a retail store, the sale and payment usually take place at the same time: the customer takes the goods and pays immediately.

In an online store or wholesale business, this is not always the case. For example, a store may ship an order with cash on delivery today but receive the money from the delivery company several days later.

In Torgsoft, profit under Analysis → Period is calculated based on goods shipped. To review actual cash flows, use Payment → Balance by Financial Analysis Categories. 

Therefore, the question «Why does the software show a profit when the money is not yet in the bank account?» may have a perfectly normal explanation: the goods have already been shipped, but the customer has not yet paid.

Where to Check Cash Flows

In Balance by Financial Analysis Categories, you can select a period, store location, and currency. The report displays the category tree, incoming funds, expenses, and the balance for each branch. For an individual category, the Transactions... button opens the list of documents that make up the amount. 

This is useful if, for example, advertising expenses were UAH 15,000 one month and UAH 32,000 the next. You can first see the change in the category total, then open the transactions to check what caused it.

Cash Collection or Cash Revenue Transfer

If the owner maintains comprehensive financial accounting in Torgsoft, it is important to keep money within the system's internal accounting records.

For this scenario, Torgsoft documentation recommends using Transfer Revenue rather than Cash Collection. When revenue is transferred, the money moves to another cash register and remains recorded in the system. With cash collection, it is removed from the software's internal cash flow. 

For example, if a salesperson hands UAH 20,000 to the owner at the end of the day, and the owner later uses this money to pay rent, salaries, and suppliers, comprehensive financial accounting requires the entire movement of those funds to remain traceable in the system.

How to Keep the Category Tree Organized

Do not restructure your categories every month. Otherwise, it will be difficult to compare March's «Advertising» with April's «Google Ads», «Instagram», «Promotion», and «Other Advertising Expenses».

Instead, establish basic rules once: one economic transaction — one clearly defined category; identical transactions — always the same category; a new subcategory is created only when it needs to be analyzed separately.

Every few months, review the category tree for duplicates, unused categories, and overly broad categories that no longer provide meaningful expense breakdowns. This approach also follows general best practices for designing financial classification systems: the level of detail should be sufficient for management purposes, but not so excessive that the classification itself becomes a source of errors. 

The Main Rule

First, divide all transactions into four clear groups: money received from sales, payments for goods, operating expenses, and internal transfers. Track the owner's personal withdrawals and major investments in business development separately.

Then add detail only to the categories you genuinely intend to compare across periods and use for decision-making. This way, financial analysis in Torgsoft answers the owner's practical questions: how much money came in, where it went, how much it costs to run the store, and why the cash balance differs from profit.