Creating Financial Statements from Bank Statements in Excel Without an Accountant

Creating financial statements from bank statements without the help of an accountant can seem daunting. However, with a clear understanding of the steps and a structured approach, you can generate your own financial reports in Excel. This guide will walk you through the process, focusing on cash-based financial statements, specifically the income statement and the balance sheet.

Understanding Cash-Based Accounting

One of the key differences between accrual and cash-based accounting is that in cash-based accounting, financial statements are reported based on the actual cash inflows and outflows, not the transactions in the period. This means that transactions like an invoice issued but not yet paid will not appear on your financial statements until the cash is actually received. For example, if a client has bought a service but the payment is due in 30 days, your income statement will not reflect this revenue until the cash is received.

Setting Up Your Chart of Accounts (COA)

To start, you need to set up a Chart of Accounts (COA). This is a list of numerical codes that categorize and classify all of your transactions. Contrary to what you might expect, since you are working on a cash basis, you will have to exclude certain accounts like accounts receivable, inventories, and prepaid expenses. These accounts are not relevant for cash-based statements. For detailed information on what a cash basis balance sheet includes, refer to the FAQs.

Building Your Income Statement

Next, you will need to create an income statement. This is built by setting up the accounts that correspond to the transactions you see on your bank statements. For example, if you see a transaction where you paid rent, you will need to record the transaction by debiting the rent expense account and crediting the cash account in your COA. Here, 'crediting the cash account' means the cash dropped (a decrease), and 'debiting the rent expense account' means an increase in expense. As you record all transactions this way, each account will have a final balance. This document, which is essentially a record of all transactions, is called the General Ledger.

Connecting the Dots for Financial Statements

Once you have recorded your transactions correctly, you can begin to build your financial statements. By reviewing the final balances of your last bank statement, you can match them with the balances on your cash account on your balance sheet. This ensures that your income statement and balance sheet are accurate and reflect the actual cash transactions of the period.

Additional Resources

For further reading and guidance, consider the book The Enlightened Accountant. This book provides a comprehensive roadmap for understanding accounting principles and practices, including the creation of financial statements.