How the financials are built

Sidesheet builds the financials from the amounts read on each return, by the same rules every time. Nothing is estimated, and nothing is added to make a total agree. The workbook preview shows the statements as the exported file has them. On a return's page, choose any amount to see the values it came from and "How it was used", such as "Adjusted by Schedule M-1, line 3b".

Each tab is built like this:

• Income Statement is book income, rebuilt from the tax return. It starts from page 1: revenue, cost of goods sold and deductions. On Forms 1120-S and 1065 it adds the Schedule K items that belong in book income. Cost of goods sold shows Form 1125-A's lines when that form ties to page 1, and page 1's single line otherwise.
• Rental Properties shows each Form 8825 property side by side, with each year's total, when the project has any.
• Balance Sheet comes from Schedule L, in accountants' names. Its totals are checked against the totals Schedule L prints.
• Tax Basis Income Statement is page 1 in the form's own order, adding up to taxable income, or ordinary business income on Forms 1120-S and 1065.
• Earnings Bridge (Unadjusted) starts from net income per books. Adding interest and, on Form 1120 only, income taxes gives Unadjusted EBIT. Adding depreciation and amortization gives Unadjusted EBITDA. Adding one owner's pay gives Unadjusted SDE: the highest-paid officer on Form 1125-E, total officer pay from page 1 when there is no 1125-E, or guaranteed payments on Form 1065. The workbook notes, for each year, which owner's pay was added back and where it came from. No other adjustments are made: those are yours.

Schedule M-1 items are differences between book and tax, not new transactions. An item that matches a row adjusts it: meals deducted on page 1 and meals not deducted on M-1 become one Meals row. An item that matches no row gets its own row, in the return's wording. A company that files a full Schedule M-3 is built from Parts II and III instead.

A line with a statement shows the statement's items as their own rows, but only when they add up to the line. When they don't, the row is the line's printed total, the statement's check is a warning, and the sources say the line's total was used because the statement doesn't tie. Once you correct the misread item, the items replace the total. Never both.

Good to know

• No plugs. The income statement's rows are checked against net income per books (Schedule M-1 line 1, or Schedule M-3 Part I line 11). When they don't agree, the check is Unreconciled and the difference shows in the return page's Reconciliation section and the workbook's Reconciliation tab. It is never added as a balancing row.
• You correct values, never rows. Rows are rebuilt from the values, so a corrected number can't become a plug.
• Years run newest first, each headed with its real year end. Rows line up across years by name, using the newest year's wording. A year with no return is an empty column.
• The exported workbook has the same statements, built from the same rows.
• New to reading returns for a valuation? The guide Using business tax returns in business valuation walks through it.