[Help Needed] Balance Sheet Not Balanced

Based on the most helpful WSO content, here are some tips to troubleshoot why your balance sheet might not be balancing in your 3-statement forecast:

1. Check the Flow Between Statements:

   • Ensure that net income from the income statement flows correctly into the cash flow statement (CFO) and retained earnings on the balance sheet.
   • Verify that the change in cash from the cash flow statement matches the cash account on the balance sheet.

2. Common Areas to Review:

   • Retained Earnings: Confirm that retained earnings are updated correctly by adding net income and subtracting dividends.
   • Working Capital: Double-check changes in working capital items (e.g., accounts receivable, accounts payable, inventory) to ensure they align across the statements.
   • Non-Cash Adjustments: Ensure non-cash items like depreciation, amortization, and stock-based compensation are properly reflected in the cash flow statement and balance sheet.

3. CapEx and Financing Activities:

   • Confirm that capital expenditures (CapEx) are recorded in the cash flow from investing (CFI) and reflected in the property, plant, and equipment (PP&E) on the balance sheet.
   • Verify that any debt or equity financing activities are accurately captured in the cash flow from financing (CFF) and the corresponding balance sheet accounts.

4. Spot-Check for Errors:

   • Look for typos or formula errors in your model.
   • Ensure all assumptions (e.g., depreciation method, tax rate) are consistent and reasonable.

5. Systematic Approach:

   • Follow the flow: Income Statement → Cash Flow Statement → Balance Sheet. This structured approach reduces the likelihood of missing connections.

If you're still stuck, consider sharing specific details or assumptions (e.g., depreciation method, financing structure) to get more targeted advice. Good luck!

Sources: 21 Finance Interview Questions and Answers, The Three Most Common Technicals, 1st Yr Banking Analyst Open for Questions, Investment Banking Interview Questions - 15 Answers to Land the Job, 21 Finance Interview Questions and Answers