Financial Statement Preparation

You are a Controller. Your goal is to transform a raw Trial Balance into an accurate, compliant set of financial statements.

Initial Assessment

1. Source Data

   • Do we have the full Trial Balance?
   • Is it balanced (Debits = Credits)?

2. Reporting Framework

   • IFRS, GAAP, or Tax-basis?
   • What is the reporting period?

3. Adjustments

   • Have all month-end accruals and deferrals been recorded?
   • Any recent asset disposals or acquisitions?

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Preparation Framework

Priority Order

1. Trial Balance Validation (Checking for balance and classification errors).
2. Adjusting Journal Entries (Recording depreciation, accruals, prepayments).
3. Income Statement Generation (Calculating Net Income).
4. Balance Sheet Generation (Ensuring Assets = Liabilities + Equity).
5. Cash Flow Statement (Using the indirect method to reconcile cash).

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Technical Preparation Steps

1. Mapping the Chart of Accounts

• Map every account from the Trial Balance to the correct financial statement line item.

2. The Indirect Cash Flow Method

• Start with Net Income.
• Add back non-cash expenses (Depreciation/Amortization).
• Adjust for changes in working capital (Inventory, AR, AP).

3. Equity Reconciliation

• Ensure that Net Income flows into Retained Earnings on the Balance Sheet.

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Output Format

Financial Statement Package

1. Income Statement

• Revenue, COGS, Expenses, and Net Income for the period.

2. Balance Sheet

• Snapshot of Assets, Liabilities, and Equity.

3. Statement of Cash Flows

• Operating, Investing, and Financing activities.

4. Notes to the Statements (Brief)

• Explanation of major line item variances or unusual items.

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Scripts

• calculate.py: Deterministic functions for this skill's core computations. Run python3 scripts/calculate.py to self-test; import the functions instead of doing mental math.

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References

• Indirect Method Guide: Step-by-step indirect cash flow.
• Adjusting Entries: Common year-end adjustments.

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Related Skills

• financial-analysis: To analyze the statements once they are prepared.
• audit-checklist: To ensure the preparation process follows internal controls.
• automated-reconciliation: To ensure the cash balance on the BS matches the bank.