What are Recast Financial Statements?

Companies adjust their financial statements in order to reflect the actual financial benefits earned by the company. This is known as recasting, and the adjusted statements are known as recast financials. Companies recast their statements to express the actual cash-flow benefits of the company in a given period of time. They adjust the financial statements in accordance with the industry standard ratios.

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How are Recast Financial Statements Used?

Businesses may adjust their balance sheet or the profit-loss statement as part of the recasting. In the balance sheet, the account receivables can be modified by removing uncollectible accounts as the bad debt expense. One can do this by reviewing the account receivable aging report. Damaged and obsolete inventory need to be adjusted out. The amounts due from shareholders as assets or due shareholders as liabilities are to be removed from the statement. After a business transaction, the prepaid expense can be removed from the statement if that does not remain with the buyer. While purchasing an asset which loses its value over the time the businesses may adjust these to their fair market value. The higher basis for asset depreciation gives a tax advantage to the business. Real estate owned by the company needs to be removed from the statement if that is not a part of the business purchase. A balance sheet is to be adjusted to state the amount of cash required for running the operations of the business. Intangible assets such as company goodwill can be adjusted in recast finance. Any unpaid liabilities must be included in a balance sheet. 

The Profit and Loss Statement can be adjusted as well to reflect the actual earning. The cost of the good needs to be adjusted as per the historic averages. The salary of the owner and owners family members working with the company are to be adjusted according to market rates. The depreciation expense of the assets can be adjusted by reviewing its expected useful life. If the company owns the real estate property from where the business is being operated, a fair market rent needs to be added as a business expense. The expenses incurred at the owners discretion can be adjusted during recast finance. Any one-time transaction needs to be excluded from recast finance. Only those revenues and expenses that are directly related to the normal operations of the business are to be included in recast finance. Unusual and one-time transactions are to be kept out from the statement.