What you will be able to do
- Integrate profit, working capital, cash, debt and balance-sheet movements.
- Diagnose errors with independent mechanical, economic and evidence controls.
- Test collection scenarios and document reproducible review findings.
Before you begin: Basic familiarity with income statements, balance sheets and spreadsheet formulas.
Separate assumptions, schedules and outputs
Start with a model map before writing formulas. Put assumptions in a clearly identified input area, give each a unit and source date, then connect operational schedules to the financial statements. A debt schedule should explain debt, interest and principal payments; a fixed-asset schedule should explain purchases, depreciation and carrying value. Avoid entering the same assumption separately in several places because later revisions will drift apart. Use a consistent time axis, sign convention and currency throughout. Define which values are historical observations and which are forecasts. Finally place diagnostic controls near the outputs a reviewer actually sees. Hidden checks on an obscure worksheet provide little protection when the investment committee reads only the summary.
Follow the signs in the working-capital bridge
Net income does not equal cash generated. Start with two hundred and thirty six point two five, add back depreciation of one hundred, subtract the one hundred increase in receivables and the eighty increase in inventory, then add the fifty increase in payables. Cash after interest and tax is two hundred and six point two five. Increased receivables mean revenue has not yet become cash; increased inventory means funds are tied up in goods; increased supplier balances temporarily preserve cash. Explain these signs using business events rather than memorising them. This is an analytical bridge for our case. Formal cash-flow presentation, including the classification of interest, must follow the applicable reporting framework and period.
Build checks with genuinely independent logic
Three layers of controls serve different purposes. Mechanical checks test whether statements connect: assets equal liabilities plus equity, debt rolls forward and cash movements reconcile. Economic checks test whether outputs make sense: sales cannot exceed capacity without investment, debtor days should match collections and negative inventory requires investigation. Evidence checks trace amounts to contracts, invoices, ledgers and bank records. A model can pass the first layer while failing the other two. For example, fabricated credit sales can increase both profit and receivables while preserving balance-sheet equality. Design checks from a different route or source where possible. Give failures clear thresholds and visible messages, and prevent a presentation from quietly suppressing unresolved material exceptions.
Make review findings reproducible
Before reviewing a model, preserve the original version and record the assumptions used to generate its outputs. For each finding, capture the cell or schedule, the business explanation, supporting evidence, proposed correction and effect on decisions. Classify issues by consequence rather than cosmetic appearance: an incorrect debt maturity can matter more than inconsistent formatting. After a repair, rerun relevant scenarios and confirm that the change has not broken another schedule. A second reviewer should reproduce important calculations from independent evidence, not merely click through the author's formulas. Sign-off should identify who prepared and reviewed the work, when they did so and which limitations remain. Never invent a professional signature or imply an assurance review that did not occur.
Apply the method
Work through each task before opening the model answer. Compare your reasoning with the review criteria. Written answers stay on this page and clear when you leave or reload it.
Applied task 1
Show model answer and review criteria
Net income is 236.25; cash after interest and tax is 206.25; closing cash is 206.25. Equipment closes at 1,050, debt at 600 and equity at 1,236.25. Total assets and liabilities plus equity both equal 2,136.25, in GHS thousands.
- Shows the receivables, inventory and payables signs correctly.
- Calculates cash, equipment and debt independently without plugs.
- Reconciles the closing balance sheet and explains the units.
Applied task 2
Show model answer and review criteria
With already recognised sales and unchanged revenue/tax, cash becomes 176.25 and receivables 430; total assets remain 2,136.25. Request customer ageing, dispute details and subsequent bank collections; document the liquidity implication and whether a separate impairment assessment is required.
- Keeps revenue and tax unchanged in the specified scenario.
- Traces the change through cash, receivables and control totals.
- Documents cause, evidence, decision effect and reviewer responsibility.
Method references
- IFRS Foundation — IAS 7 Statement of Cash Flows
Cash-flow and non-cash reconciliation concepts. The worked case is an original analytical bridge, not a complete prescribed reporting presentation.
- IFRS Foundation — IFRS 15 Revenue from Contracts with Customers
Distinguishing contract performance, revenue recognition, invoicing and collection; actual contracts require the applicable standard.