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Just a random thought on a simple approach to preparing a management account from scratch:
1. Get the bank statement and analyse the same.
- At first, focus on analysing the cash movement only.
- Categorise them between inflows and outflows
- Create different account heads (e.g revenue, cost of sales, transportation, electricity, etc) based on frequency of transactions
- Use pivot to create ledgers and subsequently create your trial balance
- Ensure your trial balance balances (Dr - Cr = 0)
2. Introduce an "Adjustments" column in your trial balance (i.e., you should have 3 columns at the end: Trial Balance, Adjustments, Adjusted Trial Balance).
- Time to consider Non-Cash items. Ask a couple of questions:
- Was all revenue paid for and earned during the period? If all is paid for and earned, fine. If not, recognise receivable for the part of revenue that was earned but cash wasn't received for. Likewise, for those cash inflows relating to revenues that were received but services weren't rendered or goods weren't delivered during the period, you should recognise "contract liability."
- What about the assets used during the year of operations? Did the company purchase any assets? Get info about this and create a PPE policy to depreciate the assets. This should be for both tangible and intangible assets.
- Ask if there were any services/goods enjoyed during the period for which payments were not made. Recognise the payable on this. Also, often times, directors spend money on behalf of the business. Ask and recognise the payable, too.
- Pass journals for all the non-cash items and ensure the movement in your journal balances, as well as your adjustment column in your TB.
- Get the CAC document to know share capital for the period and get info on paid share capital. Recognise a Credit as necessary. The debit follows whatever you find out—whether the share capital was paid for directly or funded through other means.
3. Balance the Adjusted TB.
4. Prepare your 3 statements as simple as follows:
- Income Statement: Revenue, COGS, Gross Profit, Other Income, OPEX, EBITDA, EBIT, and Net Income
- Statement of Financial Position: NCA, Current Assets, Total Assets, Equity, NCL, Current Liability, Total Equity and Liability
- Statement of Cash Flow: Operating Activities, Investing Activities, Financing Activities, Opening Cash Balance, Changes during the year, and Closing Cash Balance
Following the above, you should be able to confidently build a simple 3-financial statement from scratch.
Cheers,
#Iwelabi.
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