What To Know About Cash Flow Statements
Along with the balance sheet and the income statement, the cash flow statement is among the most critical financial documents you will use as a business owner. Simply put, a cash flow statement shows how much cash your business possesses at a given time. The cash flow statement documents all of your cash transactions — cash from operating activities, cash from investments, and cash from finance activities. By documenting these three separate types of cash transactions, the cash flow statement provides a complete picture of cash flow for your business.
There are two ways to prepare a cash flow statement. The direct way is to simply add up your cash inflows and cash outflows and arrive at a total. The indirect method utilizes your balance sheet and income statement to arrive at a net cash flow. The direct way is easier, but the indirect way will produce a more robust statement.
Benefits of Cash Flow Statements
Regular cash flow statements can help your business immensely. It is very useful to get a clear and concise picture of the amount of actual cash (and cash equivalents) your business possesses at a given time. Other financial statements, such as a balance sheet, can also be very useful to achieve a more overall view of your company; but the cash flow statement is necessary to show precisely how money is flowing in and out of your business.
The cash flow statement can help you in the following areas:
- Understanding the sources of your income
- Understanding where you are spending money
- Getting a clear sense of how much cash you have available
- Analyzing your business in terms of your cash flow
- Supporting any attempts to obtain a business loan
Using Our Cash Flow Statement Template
We’ve put together a cash flow statement template to assist you as you prepare your statements. Of course, the specifics will differ for every business, but this basic set-up should be enough to set you on the right track.
In the first section of your cash flow statement, you should include all of your incoming and outgoing money from operating activities. So, you will include revenue from product sales, as well as administrative and labor expenses, income taxes, depreciation on business assets, inventory, accounts receivable, and so on. You will then include a subtotal for this section.
Your next section will include incoming and outgoing money from investment-related activities, such as bank loans, business equipment purchases, business real estate purchases, and so forth. As with the previous section, this section will have its own subtotal.
The final section will include money from finance activities, such as draws and distributions. This section will also have its own subtotal, and then you will add up the amounts from these three subtotals to produce a final total. You will then compute your “ending cash,” which should be the amount of cash you actually have, by adding the total derived from the three subtotals (this is the “change in cash”) to your beginning cash total. If the cash flow statement is current, this ending cash should match the cash you have available in your bank accounts.
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The team at Boxelder Consulting can help you understand and interpret these statements in more detail. Get in touch with us today for more bookkeeping insights!