Can you build an Income statement out of cashflow?

[Harrith]

Hi all,

I have a very odd question here. I am an intern and currently involved in a microfinancing product proposal.

Initially, the supervisor only (and ONLY) gave info to build a cashflow statement. Hence we have that principal receipt and interest in the inflow, and the operational expenses, cost of funds, outsourcing commission and banking fees in the out flow. The cashflow is projected up to 5 years.

Now, the supervisor insisted that I build an income statement out of this cashflow. I told the supervisor it is just not possible because certain vital info like the revenue (subscription, application fees etc.) and expenses are not available.

But the supervisor still believes that I could build an income statement out of the info in the cashflow. By some 'reverse engineering'.

Any advise? Am I wrong by saying that by doing an income statement of 'reverse engineering' the cashflow would show a misleading info? Has anybody built an income statement solely out of the cashflow?!!! Please help Im really desperate.

Thanks.

 

[ArcSine]

"...solely out of the cash flow?" (emphasis mine) No. Supplemental info is required.

As you mentioned, knowing the amount of cash collected from customers, by itself, tells you nothing about total revenues. You'd have to supplement the cash collection data with info on the amount by which AR increased or decreased, or perhaps some stats showing that both revenues and collections thereof are pretty smooth, and so cash receipts serves as a pretty good proxy for Revenues.

Ask your boss how he'd estimate depreciation expense, given only cash flow information.

A P&L can be reverse engineered out of cash flow data, but only given the necessary additional info.

Note that I am supposing here that initially you were just handed the specific cash flow items (cash receipts, cash expenditures, and so on). If on the other hand you start with an actual cash flow statement, one which starts with accounting Net Income and then explicitly shows the various adjustments for book-vs-cash items to arrive at Cash Flow, you could get back to the original P&L using the adjustments given on the statement. However, from your post it doesn't sound like this was the case.

 

[eduard]

Hi, I was asked in job interview which accounts i need to reconcile on balance sheet.
I said debtors ledger, creditors, bank, petty cash, sales ledger and purchase ledger.
please help

 

[zianne]

Its possible to create an income statement out of those info but tell him it will not be as accurate as possible since there are a lot of supplemental details lacking. You could ask him nicely if he has other receipts so you could balance your IS. Goodluck!