First, we can account for the equity purchase. We should subtract any existing shareholder’s equity from the target’s balance sheet, since we’re buying it. Then we should add the equity invested from the sponsor and management rollover which can be found in the sources and uses table.
Then we can subtract the old debt and add in the new debt, which can be found in the sources and uses.
We can remove the existing cash on the balance sheet. If it’s a cash-free deal, we can close the deal with zero cash on the balance sheet, or if there’s a minimum cash balance, we should add that amount to the balance sheet.
We can capitalize the financing fees from the sources and uses.
Finally, any imbalance in the balance sheet should go to goodwill. Goodwill represents the amount we pay for the company that is in excess of its book value.