How to prepare financial statements with these 10 steps. | Abdul Khaliq posted on the topic | LinkedIn (2024)

78 Financial Statements AcronymsAcronyms are not intended to be confusing.They are present solely to simplify communication.Every profession has its acronyms. We have them in finance and accounting, too. Here are the most common ones:·APIC – Additional Paid-In Capital·APR -Annual Percentage Rate·ARO -Asset Retirement Obligation·BPS -Basis Points·BOY -Balance of Year·CAGR -Compound Annual Growth Rate·CAPEX -Capital Expenditures·CF or SCF -Cash Flow Statement or Statement of Cash Flows·CFF -Cash Flow from Financing·CFI -Cash Flow from Investing·CFO -Cash Flow from Operations·COGS -Cost of Goods Sold·CWIP -Capital Work in Progress·CY or CP -Current Year or Current Period·D&A -Depreciation and Amortization·DCF -Discounted Cash Flow·DSCR -Debt Service Coverage Ratio·EBIT -Earnings Before Interest and Taxes·EBITDA -Earnings Before Interest, Taxes, Depreciation, and Amortization·EBT -Earnings Before Tax·EPS -Earnings Per Share·EPV -Earnings Price-to-Value Ratio·FCF -Free Cash Flow·FIFO -First-In, First-Out·FMV – Fair Market Value·FV -Fair Value·FYE -Fiscal Year End·FY -Full Year·GOP -Gross Operating Profit·GP -Gross Profit·IAS -International Accounting Standard·IFRS -International Financial Reporting Standards·IPO -Initial Public Offering·IRR -Internal Rate of Return·LIFO -Last-In, First-Out·LRD -Listed Regulatory Document·LTD -Long-Term Debt·M&A -Mergers and Acquisitions·MTD -Month-to-Date·NAV -Net Asset Value·NBV -Net Book Value·NCI -Non-Controlling Interest·NPV -Net Present Value·NWC -Net Working Capital·OCI -Other Comprehensive Income·OE -Owner’s Equity·OPEX -Operating Expenses·P&L -Profit and Loss Statement ·PN -Promissory Note ·P&O -Purchase and Sale of Securities·P/E -Price-to-Earnings Ratio·PPE -Property, Plant, and Equipment·PPA -Prior Period Adjustment·PY -Prior Year·QTD -Quarter-To-Date·RE -Retained Earnings·ROA -Return on Assets·ROE -Return on Equity·ROIC -Return on Invested Capital·SCF -Statement of Cash Flows·SCI -Statement of Comprehensive Income·SOFP -Statement of Financial Position·SOCE -Statement of Changes in Equity·SOFR -Secured Overnight Financing Rate·SG&A -Selling, General, and Administrative Expenses·T/A -Total Assets·T/B -Trial Balance·T/L -Total Liabilities·T&E -Travel and Entertainment·VAT -Value Added Tax·WACC -Weighted Average Cost of Capital·WC -Working Capital·YOY -Year on Year·YTD -Year-To-DateWhat else can you add?#MAKAlpha#TheFinanceMasterclassComing Soon!------------------------------------------------------------- FollowAbdul Khaliq+ 🔔 - Sharing the essence of 20+ years of journey.- You can download all my work by clicking "View my portfolio" above.

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Payroll Processing Internal ControlsPayroll is a sensitive area.From keeping employees' salary details confidential to ensuring payroll processing accuracy.People are sensitive about their payroll information and the accuracy of the amount they receive.Try making a mistake in someone's salary, and they will be at your desk before payroll hits their bank account 😅 Companies are sensitive about ensuring the confidentiality of payroll information. We all know that people in the same grade/position are paid differently 😉 However, the disclosure of payroll information leads to disappointment and resentment.That's why establishing and implementing payroll controls is crucial. Here are some of the internal controls to help you ensure confidentiality and accuracy while preventing fraud and errors:1- Segregation of Duties2- New Joiner Data Entry Verification3- Pre-Payment Audits4- Dual Verification of Payroll Inputs5- Post-Payment Reconciliation6- Authorization Controls7- Access Controls8- Review and Approval of Payroll Reports9- Automated Controls in Payroll SystemsWhat else can you add?#MAKAlpha#TheFinanceMasterclassComing Soon!------------------------------------------------------------- FollowAbdul Khaliq+ 🔔 - Sharing the essence of 20+ years of journey.- I mentor and train finance and account professionals. DM for details.- You can download all my work in PDF format by visiting my profile.

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Intercompany Transactions ExplainedDefinition | Transactions | Elimination | ExampleEntities with various subsidiaries have challenges reconciling and eliminating the due to and due from at the consolidation level. Here are some of the challenges:1- Company A sent a debit/credit note to Company B. Company B failed to record it before the month-end close.2- Company C sent the debit note late to Company D. Company D had already closed their books and recorded it the following month.3- Company E recorded the transitions as I/C receivable, but Company F recorded them as Accounts Payable.4- Company G sent a debit note but Company H had a dispute with it, didn't record it and closed the books without resolving it.5- Company I sent a balance confirmation request, but Company J didn't confirm the balance before the month-end close.Here are some suggestions:1- Keep a cut-off date for sending/receiving/recording/reconciling intercompany transactions.2- Every company must adhere to the deadline.3- Every company must confirm the balance in writing. That is also needed for the audit. 4- Every company must prepare an intercompany reconciliation and promptly address the variances. 5- Any disputed transactions must be resolved.There are two things you need to do to make the elimination easier:1- Before the month-end close, all intercompany should be reconciled, and thebalance must be confirmed. There is no other way. 2- Everyone involved must understand the elimination process and the significance of reconciling intercompany balances.The information included will help you create awareness of the importance of reconciling intercompany before the month-end close. Here's what is included:1- Definition and Example2- Types of Intercompany Transactions3- Consolidation and Elimination4- Impact on Financial Statements and DisclosuresExample Included:Company A pays $10,000 on behalf of Company B for office supplies.• Company AI/C Receivable: $10,000 Dr Cash: $10,000 Cr• Company BOffice Supplies Exp.: $10,000 Dr I/C Payable: $10,000 CrConsolidation Process• When preparing consolidated financial statements at the parent level:• Eliminate the intercompany transaction:• Decrease Company A's Intercompany Receivable by $10,000.• Decrease Company B's Intercompany Payable by $10,000.After Consolidation• Consolidated Income Statement: Reflects the office supplies exp. by Company B• Consolidated Balance Sheet• Decrease in Cash paid by Company A• Eliminates the intercompany receivable and payable. #MAKAlpha #TheFinanceMasterclass coming soon!------------------------------------------- FollowAbdul Khaliq+ 🔔 - Sharing the essence of 20+ years of journey.- I mentor and train finance and account professionals. DM for details.- You can download all my work by clicking "View my portfolio" above.

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Accounts Receivable ProcessCustomer Acquisition to Payment CollectionSales and revenue are great, but only once cash is collected.I have seen the sales team's excitement and celebration when acquiring new customers.I have also experienced teams pushing to get the credit approvals and customer agreements signed without performing adequate due diligence and credit checks. That sometimes leads to cash flow issues, payment collection delays, and bad debts.So sales are great, but timely cash collection is more significant. That's why every companymust have robust customer due diligence and accounts receivable processes, from the largest to the smallest.I have prepared a step-by-step process for you to replicate and adjust according to the type and size of your organization.You'll find details of these steps:1- Customer Acquisition2- Negotiating & Diligence3- Order Processing4- Invoicing 5- Monitoring & Follow-up6- Payment Due Reminders7- Payment Collection8- Reconciliation9- Record Transactions10. AR Reporting11- Delayed Payments12- Dispute ResolutionWhat else can you add?#MAKAlpha #TheFinanceMasterclass Coming Soon!------------------------------------------------------------- Follow Abdul Khaliq + 🔔 - Sharing the essence of 20+ years of journey.- I mentor and train finance and account professionals. DM for details.- You can download all my work in PDF format by visiting my profile.

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Accounting to ReportingYour journey from accounting to reporting does not start with transactions.It starts with designing a Chart of Accounts that is fit for purpose, not for existing needs, but that caters to the growth of your organization.Once you have designed your CoA in a certain way, redesigning it may take much work.Transactions are the second most crucial element of your entire accounting system. Your reporting will depend on the level of accuracy of your transactions.The third thing you want to focus on is mapping your trial balance and the medium you use for consolidation and reporting—any tool you have, whether Excel or some other software, can be used.I have designed the process keeping all of this in mind. What do you think?Please keep this in consideration when you design your processes:𝗖𝗛𝗔𝗥𝗧 𝗢𝗙 𝗔𝗖𝗖𝗢𝗨𝗡𝗧 (𝗖𝗢𝗔) A well-structured Chart of Accounts (COA) is the backbone of an organization's financial management and reporting.When designing a CoA, keep this in mind:• Scalability and GrowthA thoughtfully designed COA can accommodate future growth seamlessly. • Financial Analysis and ReportingA comprehensive COA allows for the customization of reports to meet these evolving demands, whether for internal management or external stakeholders.𝗧𝗥𝗔𝗡𝗦𝗔𝗖𝗧𝗜𝗢𝗡𝗦 Transactions are nothing but an accumulation of:• Accuracy• Reliability• Controls• Attention to Details• Adherence to Policies & Procedures and Delegation of Authority𝗧𝗥𝗜𝗔𝗟 𝗕𝗔𝗟𝗔𝗡𝗖𝗘 The Trial Balance is not your P&L or your Balance Sheet. It is a consolidated position of all transactions based on the Chart of Accounts totaling zero. However, its accuracy is crucial for your consolidation and reporting.𝗠𝗔𝗣𝗣𝗜𝗡𝗚 The accuracy of the mapping between the ERP system and the consolidation tool is the key. When mapping, ask yourself:• How and what do you want to see as an output, i.e., management or financial reporting?𝗥𝗘𝗣𝗢𝗥𝗧𝗜𝗡𝗚Now, the quality of your reports depends on the consolidation and reporting tool you use or how brilliant you are in designing your Excel models. #MAKAlpha #TheFinanceMasterclass coming soon!----------------------------------------- FollowAbdul Khaliq+ 🔔 - Sharing the essence of 20+ years of journey.- I mentor and train finance and account professionals. DM for details.- You can download all my work in PDF format by visiting my profile.

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Financial Controller PathwayEducation | Technical Skills | Soft Skills | Leadership SkillsHaving a well-laid-out plan in front of you with every move meticulously planned is a half-battle won.The other half is executing the plan. This is where most of the struggle is. Execution!Here's your step-by-step pathway to becoming a Financial Controller. Every step is planned for you, starting from graduation to financial controller. Now, you have to customize this plan for your situation and execute it. Go for it!These steps are provided as overall guidance. Some steps can be completed before the others. For instance, you may prefer to complete your CA/CPA before you start the first job. Or begin focusing on your soft skills when you get your first job.What other steps can you think of, and how will you plan them?This is your pathway:1- Bachelor's DegreeObtain a bachelor's degree in finance and accounting or business.2- Entry-Level PositionObtain a bachelor's degree in finance and accounting or business.3- Technical SkillsAcquire technical accounting skills, including financial statement analysis and financial reporting. Focus on mastering accounting software and Excel.4- Professional CertificationPursue a professional certification such as CPA, CA, ACCA, CMA, or similar.5- Job RotationIt is time to look for job rotation opportunities if you have not already done so. 6- Accounting ProcessesBy now, you should have a better understanding of accounting processes. Proactively look to improve current processes.7- Acquire Soft SkillsIt is almost time to assess your soft skills and what you want to improve. Communication is a vital skill to have.8- Team ManagementDemonstrate that you have the skills to manage teams. 9- Progressive ExperienceNow, you have to look for opportunities within or outside of your organization to move up the career ladder to positions like senior accountant, financial manager, or finance manager.10- Technology ProficiencyBecome skilled in using financial software such as ERP systems. 11- Compliance & Risk MitigationFocus on strengthening your knowledge and expertise in internal controls, risk mitigation, regulatory compliance, and managing audits.12- NetworkingAttend finance and accounting conferences, join industry associations, and connect with peers and mentors. 13- Mentorship or CoachingIdentify a seasoned financial professional who can serve as your mentor. Alternatively, consider hiring a career coach.14- Prepare for LeadershipAttend leadership training programs, seek mentorship, and develop strategic thinking skills. 15- Pursue the FC PositionYou are ready now. Look for Financial Controller positions internally or externally.#MAKAlpha#TheFinanceMasterclassComing Soon!-------------------------------------------------------- FollowAbdul Khaliq+ 🔔 - Sharing the essence of 20+ years of journey.- You can download all my work in PDF format by visiting my profile.

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Income Statement - Revenue to Net Profit MovementWhat causes the change from the revenue to EBITDA to Net Profit?Observing the movement on the chart below will help you understand the cause of change. Below are the explanations and calculations for each step depicted on the chart:Revenue• Revenue, also known as sales or turnover, is the total amount of money a company generates from its primary business activities. COGS • COGS refers to the direct costs associated with producing or manufacturing the goods or services that a company sells. Gross Profit• Gross Profit is the amount of money a company has left after subtracting the direct costs of producing its goods or services (COGS) from its total revenue. • GP = Revenue – GOGSOPEX• OPEX are a company’s ongoing costs to operate its business. Include items such as rent, utilities, salaries, and marketing expenses. Other Income• Other Income refers to revenue generated by a company that is not directly related to its core business operations. This can include income from investments, interest, or other sources outside the company's primary activities. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)• EBITDA is a measure of a company's operating performance. It excludes interest, taxes, and non-cash expenses like depreciation and amortization.• EBITDA = GP – OPEX + Other IncomeEBIT (Earnings Before Interest & Taxes)• Depreciation and amortization are non-cash expenses that represent the allocation of the cost of tangible and intangible assets over time. • EBIT = EBITDA – DepreciationEBT (Earnings Before Taxes)• Interest expenses represent the cost of borrowed funds. Subtract interest from the Adjusted EBITDA.• EBT = EBIT – Interest ExpenseNet Profit• Subtract taxes from Earnings Before Taxes to arrive at Net Profit.• Net Profit = Earnings Before Taxes - Taxes#MAKAlpha#TheFinanceMasterclasscoming soon!------------------------------------------- FollowAbdul Khaliq+ 🔔 - Sharing the essence of 20+ years of journey.- You can download all my work in PDF format by visiting my profile.

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Accounts Payable ProcessReceiving Invoices to Releasing PaymentAccounts Payable is close to my heart. I started my finance and accounting career as an AP Accountant.Probably that's why the first course I developed was on "A Practical Approach to Managing Accounts Payable."Performing that role allowed me to acquire valuable knowledge and experience. The knowledge acquired at that time laid the groundwork for many years to come.If you are an accountant payables, always remember that your job is not merely accounting. You are the gatekeeper of every expense paid in the company. Your role is significant, from receiving and validating invoices to accurate expense coding to ensuring the correctness of every cent paid. - If you do not do three-way matching, never received items may be paid.- Your financial reporting will be inaccurate if you misallocate a GL code.- If you pay the incorrect amount, that's a potential loss to the company.Now you know how significant your role is.Broadly, this is what your role entails:1. Invoice Receipt• Accounts Payable (AP) accountants are responsible for receiving vendor invoices.2. The Digital Age• Embrace the digital age by implementing the process of document scanning and digitization of invoices. 3. Primary Responsibility• It is the primary responsibility of AP Accountants to validate invoices thoroughly. 4. Invoices Validation• Develop a keen eye for identifying discrepancies or errors in invoices. • It prevents financial discrepancies and potential disputes5. Three-Way Matching• The three-way matching is a best practice in AP. • Cross-referencing the invoice with the purchase order and receiving report.6. Understanding Coding• AP accountants must understand the intricacies of expense coding and account allocation.7. Expense Allocation• AP accountants must correctly assign expenses to the relevant departments or accounts within the organization.8. Organizational Priorities• Approval hierarchies involving various stakeholders, such as department heads, managers, and finance.9. Approval Workflow• Learn strategies for optimizing the approval workflow by setting deadlines and communicating efficiently with approvers.10. Payment Terms• Prepare payments based on the approved invoices and payment terms agreed with the vendor.11. Payment Methods• Payments can be made through various methods, such as checks, electronic funds transfers (EFT), or credit cards.12. Segregation of Duties• It is crucial to segregate the invoice and payment processing to avoid errors and fraud. What else can you add?💡 𝘛𝘩𝘪𝘴 𝘪𝘴 𝘱𝘢𝘳𝘵 𝘰𝘧 𝘵𝘩𝘦 "𝘗𝘳𝘢𝘤𝘵𝘪𝘤𝘢𝘭 𝘈𝘱𝘱𝘳𝘰𝘢𝘤𝘩 𝘵𝘰 𝘈𝘤𝘤𝘰𝘶𝘯𝘵𝘴 𝘗𝘢𝘺𝘢𝘣𝘭𝘦" 𝘤𝘰𝘶𝘳𝘴𝘦.#MAKAlpha#TheFinanceMasterclasscoming soon!------------------------------------------- FollowAbdul Khaliq+ 🔔 - Sharing the essence of 20+ years of journey.- You can download all my work in PDF format by visiting my profile.

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