Cash Flow Statement

A cash flow statement bears a resemblance to both Profit & Loss statement and the Balance Sheet. Concerned with how funds move through a business, what impact they have on value and how they reconcile with cash balances, a cash flow statement is concerned primarily with how cash flows in and out of the business. Cash flow statements are, more or less, a condensed version of a balance sheet that covers (and is produced every) one business year.

The end result of a cash flow statement is Net Cash, which is derived from all the other numbers that make up the report. The cash flow statement is made up of three categories – Operating, Investing and Financing.

  • Operating

Net Income
+ Depreciation Expense (+ Increase and -Decrease in Accumulated Depreciation)
+ Increases in Current Liabilities
+ Decreases in Current Assets
– Increases in Current Assets
– Decreases in Current Liabilities

  • Investing

+ Decreases in Long Term/Fixed Assets (Independent of Accumulated Depreciation)
– Increases in Long Term/Fixed Assets (Independent of Accumulated Depreciation)

  • Financing

+ Increases in Long Term Liabilities/Debt
– Decreases in Long Term Liabilities/Debt
+ Increases in Owners’ Capital
– Decreases in Owners’ Capital
– Increases in Dividends

–> Cash (Beginning Cash Balance – Net Increase/Decrease = Ending Cash Balance)

The net contribution of each section is summarised before being combined to reveal Net Cash Flow. To find out the Ending Cash Balance for the year, Net Cash Flow is subtracted from or added to the Beginning Cash Balance.

Why produce a cash flow statement?

As well as giving a summary of how much cash is available for operations, the cash flow statement also details the ways in which the business is generating cash. In turn, this reveals a lot about how (or, indeed, if) growth is taking place, i.e. whether it is through increasing debt, income etc.

How can I produce a cash flow statement?

Although KashFlow does not directly produce a cash flow statement it is possible to use the P&L and the Balance Sheet to work out the Ending Cash Balance, but we would not recommend doing so without the help of an accountant; this article is intended only as background information relating to cash flow statements and does not constitute accounting advice.

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