Lesson 4 – Tips


  • Adopt and document an accepted allocation basis, such as square footage for office space, children in care, and like the cell phone example, number of units to be allocated.
  • It is important that the basis used is documented so it can provide justification to auditors and the readers of the financial statements.
  • Identify the expenses that are directly allocated to one of the functional categories, or that need to be allocated amongst several categories using an indirect cost allocation.
  • Keep timesheets for all employees, if their responsibilities overlap different departments and programs.
  • Remain consistent with the functional and cost allocation basis. Review the allocation methodology on a periodic basis, and if necessary, make and document any necessary changes.
  • Use an accounting system that allows for the segregation of accounts by multiple segments to allow for proper allocation and generation of financial statements.