Understanding Financial Statements

In SAP, the process of managing Accounts Receivable (AR) involves several key transactions, often carried out through the SAP Financial Accounting (FI) module. Below is a list of commonly used T-codes for Accounts Receivable in SAP: 1. Posting Customer Invoices and Payments: • FB70 – Post Customer Invoice: Used to post an invoice for a customer, which updates accounts receivable and sales revenue. • F-28 – Post Incoming Payments: Used to post a payment received from a customer (could be cash or transfer). • F-32 – Clear Customer: Used to clear open customer items (like payments or credit memos). 2. Customer Account Maintenance: • FD01 – Create Customer Master Data: Allows you to create a new customer in the system. • FD02 – Change Customer Master Data: Modify existing customer data. • FD03 – Display Customer Master Data: Display customer details without making changes. 3. Credit Management: • FD32 – Change Customer Credit Management: Used to update credit limits for customers. • FD33 – Display Customer Credit Management: Display customer credit information. 4. Customer Payments and Clearing: • F-39 – Post Payment: Manual posting of customer payments. • F-44 – Clear Open Items: Clears open customer items manually, like applying a payment to a specific invoice. 5. Account Reconciliation and Aging Reports: • F.13 – Automatic Clearing: Clears open items for customers automatically. • F-30 – Post Customer Down Payment: Used to post an advance or down payment made by a customer. • FS10N – Display G/L Account Balances: Can be used to check the balance for accounts receivable (G/L 100000, for example). • S_ALR_87012168 – Customer Open Items List: Displays open customer invoices and payments. • F.22 – Customer Aging Report: Provides a list of receivables broken down by overdue periods. 6. Credit Memos and Adjustments: • FB75 – Post Customer Credit Memo: Used to post credit memos (reduce amounts due from customers). • F-27 – Post Credit Memo for Customer: Another way to post credit memo for a customer. 7. Dunning (Reminders for Outstanding Payments): • F150 – Dunning: To create and send dunning letters to customers for overdue payments. • F150B – Dunning History: Displays the dunning history for customers. 8. Reports and Analysis: • S_ALR_87012182 – Customer Receivables Aging Report: Used to analyze aging of accounts receivable. • F-23 – Post Customer Payment and Clear: This is an alternative method for handling incoming payments and clearing. These T-codes cover a broad range of Accounts Receivable functions in SAP, from basic posting and customer account management to credit control, dunning, and reporting. However, If there is anyother T-codes, feel free to share.

IFRS 18 IS HERE: USHERING A NEW ERA IN FINANCIAL STATEMENT PRESENTATION Starting 1 January 2027 (early adoption permitted), IFRS 18 will officially replace IAS 1 – Presentation of Financial Statements, marking a major milestone in the evolution of financial reporting. As a Finance Team Lead with deep hands-on experience in IFRS and international accounting standards, I’ve had the opportunity to dive into this transformative change — and it’s clear: this isn’t just about compliance. It’s about how we tell the financial story of our organizations to investors, regulators, and stakeholders. What’s Changing? At the heart of IFRS 18 is a more structured and standardized Statement of Profit or Loss, now categorized into three clearly defined sections: 1️⃣ Operating – Core business activities (e.g., revenue, cost of sales, admin expenses), now culminating in a mandatory “Operating Profit” subtotal. 2️⃣ Investing – Captures returns from associates and investments, helping users understand value creation beyond operations. 3️⃣ Financing – Reflects interest expense, FX losses, and the cost of capital, separated from business performance. Another key highlight: The introduction of “Profit Before Financing and Income Tax” – a new subtotal that gives clearer insight into core performance. Gone are the gray areas and inconsistent reporting practices. Now, CFOs and finance leaders must align internal systems, reporting structures, and the chart of accounts to reflect this new classification model. Practical Implications 1) Interest Expense on Lease Liabilities 🔹 Previously: Reported inconsistently under finance costs 🔹 Now: Must be classified under Financing 2) Investment in Associates 🔹 Previously: Placed variably across statements 🔹 Now: Clearly under Investing Revenue & Cost of Sales 🔹 Remain under Operating Why This Matters for CFOs & Finance Teams: ✅ Clarity – Standardization across industries improves comparability ✅ Discipline – Enhanced transparency for Management-Defined Performance Measures (MPMs) ✅ Confidence – Transparent reporting builds investor trust ✅ Future-Readiness – Aligning systems now avoids disruption later The time to prepare is now. Let’s not view IFRS 18 as just a new standard — but as a strategic opportunity to elevate financial storytelling with structure, consistency, and confidence. 👉 IFRS 18 is not just a compliance requirement — it's a communication tool for value. #IFRS18 #FinanceLeadership #FinancialReporting #AccountingStandards #IASB #FinanceTeamLead #IFRS #TransparencyInFinance #MPMs #OperatingProfit #InvestingActivities #FinancingActivities #FinancialStorytelling #CFOInsights #FutureOfFinance #ChartOfAccounts #ERPTransformation

IFRS 18 is Here: A New Era for Financial Statement Presentation A significant shift in financial reporting is on the horizon. The International Accounting Standards Board (IASB) has issued IFRS 18, a new standard for the presentation and disclosure in financial statements, which will officially replace the long-standing IAS 1. This marks a pivotal moment for preparers and users of financial statements, aiming to enhance comparability and transparency in financial reporting worldwide. Key Changes to Expect: IFRS 18 introduces several key changes designed to improve the structure and content of the statement of profit or loss. The most notable changes include: Defined Categories in the Statement of Profit or Loss: IFRS 18 mandates the classification of income and expenses into three main categories: operating, investing, and financing. This structured approach is intended to provide a more consistent and comparable view of a company's performance. New Required Subtotals: The new standard will require the presentation of two key subtotals in the statement of profit or loss: Operating profit or loss Profit or loss before financing and income tax These defined subtotals will offer a clearer picture of a company's core operational performance. Enhanced Disclosures for Management-Defined Performance Measures (MPMs): Companies will now be required to provide more transparent disclosures about any non-GAAP or alternative performance measures they use. This includes a reconciliation to the nearest IFRS-defined total, bringing greater clarity and discipline to the use of such metrics. Improved Aggregation and Disaggregation: IFRS 18 provides more detailed guidance on how to group and separate information in the financial statements, aiming to strike a better balance between providing sufficient detail without overwhelming users with immaterial information. What This Means for Businesses and Investors: The implementation of IFRS 18 will require companies to review and potentially revise their financial reporting systems and processes to align with the new presentation requirements. This may involve changes to chart of accounts, internal controls, and financial statement templates. For investors and other users of financial statements, IFRS 18 is expected to bring significant benefits. The standardized presentation and enhanced disclosures will facilitate more meaningful analysis and comparison of companies across different industries and jurisdictions. The clearer distinction between operating, investing, and financing activities will provide deeper insights into a company's value creation process. The transition to IFRS 18 presents both a challenge and an opportunity. By embracing these changes, companies can enhance their financial storytelling and provide stakeholders with a more transparent and coherent view of their performance in the new era of financial reporting. #IFRS18 #IFRS #IAS1

IFRS vs GAAP - The Accounting Standards Showdown! Everyone talks about these standards, but few understand their real differences. Let's dive deep into what actually matters 👇 ➡️ THE BASICS IFRS is a set of global accounting standards developed by the International Accounting Standards Board (IASB). Its mission? Creating consistency and transparency in financial reporting across borders. GAAP is a comprehensive set of accounting standards developed by FASB. Known for its detailed, rule-oriented approach that provides specific guidance for various accounting situations. ➡️ PRINCIPLES VS. RULES IFRS takes the flexible route, focusing on professional judgment and economic substance. It's like having principles guide your decisions instead of following a strict rulebook. GAAP? It's all about specific guidelines. Every situation has its rule, every industry its playbook. Less room for interpretation, more focus on consistency. ➡️ REVENUE RECOGNITION Both systems use a 5-step model, but IFRS gives you room to breathe. It focuses on transfer of control and lets you apply broader principles across industries. GAAP draws clear lines in the sand. Each industry gets its own guidelines, and you better follow them to the letter. ➡️ INVENTORY VALUATION IFRS keeps it straightforward - no LIFO allowed, just FIFO or weighted average. Simple, clean, globally consistent. GAAP gives you options. LIFO, FIFO, weighted average - take your pick. Just remember, once you choose, you're committed. ➡️ R&D AND DEVELOPMENT Here's where it gets interesting. IFRS splits research from development - expense the research, but if development will make money, you can capitalize it. GAAP doesn't play that game. Both research and development get expensed, with few exceptions. Simple but perhaps not as reflective of reality. ➡️ IMPAIRMENT TESTING IFRS uses a two-step dance: check for impairment signs, then calculate recoverable amount. The best part? You can reverse impairment losses. GAAP keeps it one-and-done. Once you write it down, it stays down. No second chances, no reversals. ➡️ FINANCIAL STATEMENTS Income statements under IFRS flow with flexibility. Present it how it makes sense for your business. GAAP says stick to the script - specific formats, mandatory line items, no freestyle allowed. Balance sheets? IFRS lets you choose between current/non-current or liquidity order. GAAP wants non-current assets first, no questions asked. ➡️ GLOBAL REACH IFRS dominates globally - from the EU to Australia, Asia to South America. It's the language of international business. === Why does this matter? Because in today's global business world, you'll likely deal with both. Want to work internationally? Learn IFRS. Focused on US markets? Master GAAP. Want to be invaluable? Know both. Which standard do you work with? Drop your experiences below 👇

Capex investments shape cash flow and impact operating efficiency. Here's an example you might borrow. There are 3 separate forecasts for 3 different capital expenditures for a food company: • Buildout of a commercial kitchen • Acquisition of a tempering machine • Acquisition of an automatic filler There are a few areas to demystify: 𝟭) 𝗧𝗶𝗺𝗶𝗻𝗴 𝗮𝗻𝗱 𝗖𝗮𝘀𝗵 𝗙𝗹𝗼𝘄𝘀 Major projects are rarely paid all at once. The timing of the schedule matters for cash flows and financing. The move to the commercial kitchen is estimated to cost $800,000. 10% of this amount ($80,000) will be due first to the general contractor. There is a drop-down, using data validation, that allows the modeler to select which month the deposit is set to be paid. The remaining drop-downs allow the modeler to forecast the 1st phase and 2nd phase payments. 𝟮) 𝗧𝗶𝗺𝗶𝗻𝗴 𝗮𝗻𝗱 𝗗𝗲𝗽𝗿𝗲𝗰𝗶𝗮𝘁𝗶𝗼𝗻 While depreciation doesn't matter much for direct cash flow modeling, it's important for depreciation expense on the P&L, accumulated depreciation for balance sheet forecasts, and tax planning. Here you can see that I'm assuming 15-year, 5-year, and 7-year depreciation respectively across the investments. This assumption determines the monthly depreciation expense. Below the assumption for useful life, an automated formula determines the first full month of the asset deployment. The month prior, uses an automated mid-month convention for conservatism. 𝟯) 𝗧𝗵𝗲 𝗖𝗮𝗽𝗲𝘅 𝗢𝗻/𝗢𝗳𝗳 𝗧𝗼𝗴𝗴𝗹𝗲 Excel nerds unite. I use the check box functionality at the top to include or exclude these capex forecasts from the integrated model. Why not just zero out the forecasts instead? Because that's manual and permanent. The CFO will hate that and you'll waste time. The toggles let you maintain the assumptions while running, or not running, scenarios on the forecast. 𝗛𝗲𝗿𝗲'𝘀 𝗮 𝗿𝗲𝗰𝗮𝗽: • Each project is broken down into phases (initial deposits, final payments). • Depreciation is tied to the month the fixed asset enters service, not just when cash goes out. • Check boxes allow the CFO to keep the capex forecast assumptions in place, but turn on/off the impact to financial forecast models. • Everything in blue font is an assumption, while everything in black font is formulaic. The forecast can be updated in minutes and toggled in seconds.    This is benefit of building a highly-reliable templated approach for one capex forecast. You can copy it and apply similar flexible methodology to the others.

An easy way to forecast capex ↓ Here's my favorite part about the budgeting process: It's late October... Revenue and EBITDA look good, you're about to hit submit, and then from the shadows someone yells, "𝙬𝙖𝙞𝙩, 𝙬𝙝𝙖𝙩 𝙖𝙗𝙤𝙪𝙩 𝙘𝙖𝙥𝙚𝙭?" Everyone looks around and then the "ohhhhh whoops" feeling sets in. We forgot capex. Completely. Why? It's not part of the P&L so it often gets overlooked until the end. The truth is — 𝗖𝗮𝗽𝗶𝘁𝗮𝗹 𝗘𝘅𝗽𝗲𝗻𝗱𝗶𝘁𝘂𝗿𝗲𝘀 𝗼𝗿 "𝗖𝗮𝗽𝗲𝘅" 𝗶𝘀 𝗶𝘁'𝘀 𝗼𝘄𝗻 𝘀𝗲𝗽𝗮𝗿𝗮𝘁𝗲 𝗯𝘂𝗱𝗴𝗲𝘁. It just happens to hit the Balance Sheet (& therefore Cash Flow Statement) instead of the P&L. ——— There's good news, however — it's actually a fairly easy process. But first, what is "capex"? "𝗖𝗮𝗽𝗲𝘅" 𝗶𝘀 𝗰𝗮𝘀𝗵 𝘄𝗲 𝘀𝗽𝗲𝗻𝗱 𝘁𝗼𝗱𝗮𝘆 (𝘁𝗼 𝗮𝗰𝗾𝘂𝗶𝗿𝗲 𝗮𝗻 𝗮𝘀𝘀𝗲𝘁) 𝘁𝗵𝗮𝘁 𝗯𝗲𝗻𝗲𝗳𝗶𝘁𝘀 𝘂𝘀 𝗶𝗻 𝘁𝗵𝗲 𝗳𝘂𝘁𝘂𝗿𝗲. We depreciate the 𝗰𝗼𝘀𝘁 in the future to satisfy the "matching principle" Why depreciate? Well if I buy a delivery truck, that truck will help me generate Revenue over the next [7] years or so (by making deliveries). So, I need to "match" its cost against the Revenue it helps me generate. ——— So with that in mind, here's how we can build it: Take a look at the image below... I've got two identical sections (in terms of layout) that do slightly different things. The first is the "capex" section, and this is where I list the actual project and what it will cost. So the very first entry, I'm saying, "I'd like to buy a $75,000 truck in February of 2027 and I think it will last me 8 years (the "useful life")." And you can see over to the right the 𝗰𝗮𝘀𝗵 𝗶𝗺𝗽𝗮𝗰𝘁 -- $75,000 goes out in February of 2027. ——— Now, the second section: You can see that same new truck is listed at the top, but over to the right it's different... In February 2027 you see $781 that continues monthly. That is the 𝗱𝗲𝗽𝗿𝗲𝗰𝗶𝗮𝘁𝗶𝗼𝗻 = $75,000 / 8 years / 12 months = $781 per month. Effectively, the depreciation makes an accounting adjustment to my cash cost so that the expense of the asset 𝙢𝙖𝙩𝙘𝙝𝙚𝙨 the Revenue it helps create. ——— From there, it's just a link-up to my 3 Statement Model: ✅ (1) the Capex links to the Fixed Asset account like this: ◼️ Prior Period balance 𝘱𝘭𝘶𝘴 the new Capex (if done correctly, this will let me see the $75,000 in the Cash Flow Statement) ✅ (2) the Depreciation links to my Income Statement, and; ✅ (3) it gets captured on my Balance Sheet in Accumulated Depreciation ◼️ Prior Period balance 𝘱𝘭𝘶𝘴 the new Depreciation (if done correctly, this will zero out any "cash impact" of Depreciation in my Cash Flow Statement) ——— The net impact of it all? I'm showing the cash out the door today, but also have the correct accounting treatment of depreciating the cost in the future 👍 𝙒𝙖𝙣𝙩 𝙩𝙝𝙚 𝙩𝙚𝙢𝙥𝙡𝙖𝙩𝙚? Download it for free in the comments below 🔽

Month-End Activities for Financial Statement Preparation Month-end closing activities are essential for producing accurate and reliable financial statements. A comprehensive breakdown of the steps: 1. Pre-Month-End Preparations Review Open Transactions: Ensure all revenue, expense, and asset transactions are recorded. Set Deadlines: Communicate closing deadlines to all relevant departments. 2. Reconcile Accounts Reconciliation is crucial to ensure the accuracy of financial data. Bank Reconciliations: Match all bank account balances to the general ledger. Subledger Reconciliations: Verify AR, AP, and inventory balances against respective subledgers. Intercompany Reconciliations: Ensure transactions between entities are matched and recorded correctly. 3. Record Accruals and Adjustments Accurate financial reporting requires capturing all relevant expenses and revenues. Accrued Expenses: Record any incurred but unpaid expenses (e.g., salaries, utilities). Deferred Revenue/Expenses: Adjust for revenue or expenses recognized but not yet due. Prepaid Expenses: Allocate monthly portions of prepaid items (e.g., insurance). 4. Depreciation and Amortization Fixed Assets: Post depreciation journal entries based on asset schedules. Intangible Assets: Record amortization expenses as per the company’s accounting policy. 5. Revenue Recognition Review and recognize revenue in compliance with applicable accounting standards (e.g., ASC 606 or Ind AS 115). Ensure revenue is correctly matched with expenses (matching principle). 6. Variance Analysis Compare actual results against budgets or forecasts. Investigate and document significant variances for review by management. 7. Inventory Valuation Perform inventory counts (if applicable). Adjust for shrinkage, obsolescence, or write-offs. 8. Consolidate Financial Data Consolidate data from all business units or entities. Eliminate intercompany transactions during consolidation. 9. Review General Ledger (GL) Accounts Trial Balance Check: Ensure the trial balance is balanced. Adjusting Entries: Post-correcting entries for identified errors. GL Reconciliation: Match balances with supporting documentation. 10. Tax-Related Adjustments GST/VAT Reconciliation: Match tax filings with the GL. Deferred Taxes: Calculate and record deferred tax assets/liabilities. 11. Prepare Financial Statements Income Statement: Summarize revenues and expenses to calculate net income. Balance Sheet: Ensure all assets, liabilities, and equity are accurately recorded. Cash Flow Statement: Compile operating, investing, and financing activities. 12. Final Review and Approvals Management Review: Provide draft financial statements for managerial review. Audit Trail: Ensure all entries have supporting documentation. Approval: Obtain necessary approvals from department heads or senior management. #rtr #accounting #finance #brs

How to Read a Cash Flow Statement Like a Pro Many professionals stick to the P&L and balance sheet. But the cash flow statement often hides the truth about a company’s financial health. Here’s how to break it down step by step: 1. Start with Operating Cash Flow - This shows how much cash the core business is generating. - Healthy companies should consistently have positive OCF. - If profits are rising but OCF is falling, dig deepe, it may be earnings manipulation. 2. Move to Investing Cash Flow - Look at where the company is investing its money. - Negative ICF is not always bad; it often means the company is investing in growth (like new plants, tech, or acquisitions). - But frequent asset sales boosting ICF can signal trouble. 3. Check Financing Cash Flow - Tells you how the company raises and returns capital. - Continuous inflows from debt/equity issuance may suggest dependence on external funding. - Outflows in the form of dividends or buybacks show shareholder returns. 4. Focus on Free Cash Flow (FCF) - The cash left after operating and investing activities. - Positive and growing FCF indicates sustainability and long-term strength. Bottom line: Accounting profits can be dressed up, but cash rarely lies. Master the cash flow statement, and you’ll start seeing companies in a completely different light.

The Balance Sheet is the most valuable Financial Statement, yet most businesses ignore them. Here is what the Balance Sheet teaches you and how to analyze it: The Balance Sheet formula is: Assets = Liabilities + Equity Rework that formula and you get Assets - Liabilities = Equity What you own - what you owe = book value of the business. In this way, it’s answering the question, is this business healthy? A book value < 0 = Accounting Insolvency But Accounting Insolvency is just a book number; you might still be able to meet your obligations with cash flows. Good? No… but not cash flow insolvency, where you can’t meet your short or long-term obligations. The Balance Sheet is broken into 3 sections: • Assets: what you own • Liabilities: what you owe • Equity: the difference Both Assets & Liabilities are further broken down into short-term (less than year) or long-term (more than year hold or maturity). The Equity section is broken into these components: • Common stock (initial capital investment) • Owner’s contributions • Owner’s distributions • Retained earnings • Current Year Net Income Current Year Net Income from the Income Statement shows up in the equity section. Every year, that balance is zeroed out and rolled in Retained Earnings, which is a reflection of historical earnings of the business. To analyze this statement, you’re going to do two types of analysis: • Horizontal • Ratio Horizontal Analysis is looking at the change between a past period and the current period. That can be past month, quarter, or year. With Ratio Analysis, you’ll look for benchmarks as well as trends. Some common types of ratios are: • Liquidity Ratios These ratios measure your ability to turn assets into cash. Some favorites are: - Current Ratio or Quick Ratio - Cash Burn Rate / Cash Runway - Cash Conversion Cycle • Solvency Ratios These ratios show your ability to pay-off debts. Some common ones are: - Debt-to-equity Ratio - Interest Coverage Ratio - Debt Service Coverage Ratio • Return on Ratios These tell you what your return on investment is. Trying to use your assets efficiently? Use Return on Assets (ROA) Looking to measure financial efficiency compared to competitors? Return on Equity (ROE) Wonder how efficiently you’ve deployed investor capital? Return on Invested Capital (ROIC) Want to understand how well current capital is utilized (especially in capital-intensive industries)? Return on Capital Employed (ROCE) You should NEVER use all of these ratios. Choose the specific analysis tools that are best for your business and watch: • trends • thresholds When a trend turns bad or a threshold number is broken, dive deeper and determine why. Thanks for reading! If you’re a business owner and want to be able to use your financials as a decision-making tool, check out my cohort (it starts March 11th): https://lnkd.in/gXMntDyz

Evaluating Methodologies for Identifying Liquid Assets: A Strategic Approach Appraising the liquidity of an asset is fundamental in finance, affecting everything from day-to-day trading operations to long-term strategic planning. Identifying liquid assets accurately enables better risk management and optimises asset allocation. Several methodologies can assist in determining the liquidity of an asset, each with its distinct focus and applicability: 1. Volume Analysis: This involves examining the average volume of transactions over a specific period. High trading volumes generally indicate a higher liquidity level, as the asset can be bought or sold quickly without a substantial price impact. Volume analysis is straightforward and provides a real-time snapshot of market activity. 2. Bid-Ask Spread: The bid-ask spread is the difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask). Narrower spreads are typically indicative of more liquid assets, reflecting a healthy demand and supply balance. This method is particularly useful for assessing liquidity in real-time market conditions. 3. Market Depth: This method evaluates the size of orders at different price levels within an order book. Assets with deep market depth, where large orders can be accommodated with minimal impact on the asset's price, are considered highly liquid. Market depth provides a more nuanced insight into liquidity, beyond what volume and spread can reveal alone. 4. Time to Execution: Measuring the average time it takes for an order to be executed at a reasonable price also serves as an indicator of liquidity. Shorter execution times are characteristic of more liquid markets where buyers and sellers are readily available. 5. Resilience: This approach looks at how quickly prices return to equilibrium after a trade, indicating the market's ability to absorb shocks. A market that quickly recovers from large trades without large price fluctuations demonstrates high liquidity and resilience. Each of these methodologies has its advantages and limitations. For example, while volume analysis offers simplicity, it may not fully capture liquidity during off-peak hours or under unusual market conditions. Similarly, the bid-ask spread can quickly widen in volatile markets, temporarily misrepresenting an asset’s typical liquidity. It is therefore prudent to employ a combination of these methodologies to gain a comprehensive understanding of an asset's liquidity. This multifaceted approach not only enhances the accuracy of liquidity assessment but also provides a robust framework for managing financial risks more effectively. Understanding and applying these methodologies can significantly benefit portfolio management by ensuring that assets can be converted into cash quickly and efficiently when required, thereby maintaining financial stability and meeting operational needs without compromising on returns.