What is a Cash Flow Statement?

 

The cash flow statement may be the most important financial statement one prepares. It traces the flow of funds (or working capital) into and out of your finances during an accounting period.

 

A cash flow statement should probably be prepared as frequently as possible. This means either monthly or quarterly.

A cash flow statement can be used to assess the timing, amount and predictability of future cash flows and it can be used as the basis for budgeting. You can use a cash flow statement to answer the questions, "where did the money come from?" "Where did it go?"

 

Thee loan officer will use cash-flow analysis techniques to evaluate your ability to generate cash to repay a loan. A cash flow statement is also a key to understanding the investment and financing philosophy of a borrower. It will be used by your banker to answer the question, "Does this person have enough cash to make payments on a loan?"

 

Watch Out For… Cash flow is not the same as net income. Cash flow will not match the amount of net income shown on your profit and loss (P & L) statement. This is because net income includes noncash items, such as depreciation. And also because net sales are sales not cash payments.

 

Our specialist will show you how to adjust net income to compute cash flow.

 

You may want to consider the following questions before you start:

 

Do I have a record of what was paid to suppliers and employees during the time period being examined?

YES NO

 

Do I have a system to record sales or other revenues that flow into the business?

YES NO

 

Do I have an income statement and a balance sheet for the same period for which I am constructing the cash flow statement?

YES NO