Cash Flow Status: Explanation and Example |bank accounting (2023)

Let's take a closer look at what the cash flow countries do for their business and why they are so important.Presentation.

What is a cash flow state?

A condition of the cash flow is a regular financial state that tells you how much cash he has for a certain period of time.

While income states are excellent to show him how much money he spent and won, they don't necessarily tell him how much money he has on hand for a certain period of time.

If you use the accounting of the accumulation basis, income and expenses are recorded when you are earned or created, not if money really leaves or enter your bank accounts more information about theEffective against accumulation of accumulationAccounting systems)

Even if you see an income in your profit and loss account, you may not have the money of this available income.The cash flow status accepts the information given in your profit and loss account, so that you see your flow of net effectively, the accurate amount of cash that you have by hand for this period.

For example,DepreciationIt is recorded as a monthly effort.However, it has already paid effectively for the depreciated asset;Register it monthly to see how much it costs to have the asset during its useful life.Leave his bank account at the literally every month.

The cash flow status accepts this monthly effort and invests it.So see how much effective it really has and not how much theoretically spent.

Why do you need cash flow?

During the use of accumulation calculation, Cashflow countries are an essential part of the financial analysis for three reasons:

  1. They show youliquidityThis means that you know exactly how much surgical cash flow it has if you have to use it.Then you know what you can pay and what you can't do.

  2. They show them changes inAssets, liabilities and equityIn the form of cash expenditure, cash and effective entries that are retained.Three categories are the core of the accounting of your business.Jureters form the accounting equation with which they can measure their performance.

  3. Future cash flows will be predictedYou can use cash flow to createCashflow projectionsSo you can plan how much liquidity your company will have in the future.This is important to create long -term business plans.

If you plan to ensure a credit or credit line, you must also need updated cash flow countries.

Negative cash flow compared to a positive cash flow

If its cash flow status shows a negative number on the ground, this means that it lost cash during the accounting period, it has a negative cash flow.It is important to remember that the long -term negative cash flow is not always a bad thing, for example, early companies have to pursue theirCombustion speedWhile I try to become profitable.

If you have a positive number at the end of your account status, you have a positive cash flow for the month.Negative reasons why this money, for example, takes over a great loan to save your business in failure.The positive cash flow is generally not always positive.

Where do cash flow states come from?

If you do yoursAccounting in ExcelYou can calculate the cash flow every month based on information on your income and credit.If you useAccounting programCan create cash flow, depending on the information that has already been enteredCapacity.

Remember that both methods are only necessary for their cash flow status that the rest of their accounting is also required.The safer way of knowing how much operating capital hasRent a switchYou ensure that everything is added so that your cash flow status always offers you a precise image of your company's financial health.

Cashflow states with direct and indirect methods

To calculate your company's cash flow, you can take one of two routes: the direct method and the indirect method.Generally recognized accounting principles (US -GAAP.)Both approval, the indirect method is usually preferred by small companies.

The direct method for calculating the cash flow

With the direct method, a cash record is retained when it occurs and leaves the business, and uses this information at the end of the month to prepare a cash flow status.

The direct method requires more preliminary work and organization as the indirect method: it must create and follow cash income for every cash transaction.For this reason, smaller companies generally prefer the indirect method.

It is also worth mentioning: Even if you record cash flows in real time with the direct method, you should also use the indirect method to reconcile your cash flow declaration with your declaration of results.Therefore, you can generally expect you to take the direct method more time than the indirect method.

The indirect method for calculating the cash flow

Use the indirect method to observe the transactions registered in your declaration of results.Then you will reverse some of them to see your operating capital.She selectively draws her result status back in order to remove transactions that do not indicate the movement of cash.

Many small companies prefer this approach how the direct method is easier.

In our following examples we will use the indirect method for calculating the cash flow.

How the cash flow status works with the profit and loss account and the general remaining amount

You use your informationDeclaration of incomeAnd youBalance sheetTo create your cash flow status.The status of the results enables you to know how the money entered and your company left, while the balance shows how these transactions affect different accounts, such as:B.requirements, Inventory andBilling.

Then the financial report for your company goes:

Result status + general balance = cash flow status

Example of a cash flow state

Now that we have an idea of what an explanation about the cash flows and generally, as it is created, check an example.

Cash Flow Status: Explanation and Example |bank accounting (1)

There is a good amount to unzip here.But you need to know that to have an approximate idea of what this cash flow is doing.

  • Red Dollar amountsReduction of cash.For example, if we see (30,000 US dollars) together with "increase in the inventory", this means that the inventory has generally increased by $ 30,000.We have a inventory worth 30,000 US this quantity.
  • Black dollar amountsIncrease cash.For example, if we see 20,000 US dollars next to "depreciation" what $ 20,000 in the profit and loss account, but depreciation does not really reduce the cash.So we add it to the net income.

It is also determined that the status of cash flows is divided into three sections: use of operational activities, the cash flow of investment activities and the cash flow of financial activities.Let's see what every section of the cash flow state does.

The three sections of a cash flow state

These three parts of the activities of the cash flow status refer to the different options, how the money can occur and leave their business.

  • The cash flow of operating activitiesAre you preserved in cash or issued for the course of regular commercial activities: the main parts in which your company earns money, sells products or services?
  • Cashflow of investment activitiesYou will be received or issued in cash or output investments from your company, e.g.B. equipment or investment in other companies?
  • Cashflow of financing activitiesThey are earned in cash or output to finance your company with loans, credit lines orOwnership capital.

Using the example of the previous cash flow status, you will find a more detailed appearance of what every section does and what it means for your company.

The cash flow of operating activities

For most small companies, the operational activities will include most of their cash flow.This is due to the sale of cakes.If you are oneRegistered massage therapistYou can see your effective cattle in operating activities when you give massages and spend the money on rent and public services.

Cashflow of operational activities in our example

If we look at this section again, we set off the line per line.

GrandchildrenIt is the total income according to expenses for the month.We receive this to the profit and loss account.

DepreciationIt is recorded as an effort of 20,000 US dollars in the declaration of results.Here it appears as income.Since no cash really left our hands, we add that 20,000 US dollars return to the available cash.

Increased accounts payableIt is recorded as an issue of 10,000 US dollars in the declaration of results.This is the money we owe, in this case we say that it pays contractors for the construction of a new goat.As the money we owe it, but not really we really paid for it, we add the available amount.

Increased demandsIt is recorded as a growth of the claims of 20,000 US dollars in the results states of claims.Then we derive this 20,000 US dollar cash.

Vertical increaseIt is recorded as growth of $ 30,000 in the balance sheet.This means that we have paid 30,000 US dollars in cash to receive 30,000 US dollars in stock.The inventory is an asset, but it is not effective, we cannot spend it.Then we derive the cash of $ 30,000.

Net effective operating activitiesAfter all the above changes have been made, it is 40,000 US dollars.

Despite the fact that our company won 60,000 US dollars in October (as reported in our results), we received only $ 40,000 in cash from operational activities.

Cashflow of investment activities

This section deals with investments that your company has made: buying equipment, real estate, land or financial products easily to liquidate "cash equivalents".In the event of expenses in an investment, this cash becomes the same asset.

If you buy a host of 10,000 US dollars for your landscape building company, you lose 10,000 US dollars in cash and receive a cutter of $ 10,000.If you buy a retail area of $ 140,000, you will lose $ 140,000 in cash and receive a retail range of $ 140,000.

As part of the cash flow of investment activities, we can reset these investments and eliminate the available cash.They have bar value, but are not the same as in cash, and the only asset that interests us is the currency in this context.

For small companies, the cash flow will generally not represent most of the cash flow for your company from investment activities.However, it must continue to be reconciled because it affects the operating capital.

Cashflow of investment activities in our example

Purchase of equipmentIn our declaration of results, it is recorded as a new asset of 5,000 US dollars.It is an asset, not in cash.With (5,000 US dollars) in the cash flow state, we derive 5,000 US dollars in cash.

Cashflow of financing activities

This section covers the obtained or the assets issued for financing activities.

Cashflow of financing activities in our example

PayRegister als 7.500 US -DollarResponsibilityIn the credit.Since we received credit gains, we have recorded it as an increased cash of 7,500 US dollars.

Cashflow for the month

At the end of our cash flow status we see our entire cash flow for the month: 42,500 US dollars.

Although our net income, which was removed from our result state), was 60,000 US dollars, we have only received $ 42,500.

That is 42,500 US dollars that we can issue at the time.If we only observed our net income, we could believe that we had 60,000 US dollars in hand.In this case, we would not really know what we had to work, and we would take the risk of spending too much to issue our liquidity to loan civil servants or commercial partners incorrectly.

Use of a cash flow status

Is there your own bookkeeping with spreadsheets?In this case, the use of a cash flow template saves time and energy.

OurFree Cashflow templateIt is easy to download and easy to use.

How to follow the cash flow using the indirect method

Four simple rules that you should remind you when creating your cash flow status:

  1. Transactions that show an increase in assets lead to a decline in cash flow.
  2. Transactions that show a decrease in assets lead to an increase in cash flow.
  3. Transactions that show an increase in the liabilities lead to an increase in cash flow.
  4. Transactions that show a decrease in liabilities lead to a decline in cash flow.

If you have already gone through the previous sample statement and feel like you have a good understanding of how you can create a cash flow declaration, continue and experiment with ourFree results status templateyFree Cashflow template.

However, if you want to have a clearer idea of how everything works, this quick example should help.

Creation of a cash flow state from its explanation of the results and the balance sheet

Suppose we create a cash flow declaration for the position of the Paletas de Greg for July 2019.

Our result status can be seen:

Cash Flow Status: Explanation and Example |bank accounting (2)

Note: For the sake of simplicity, this example leaves income tax.

And our balance is seen as follows:

Cash Flow Status: Explanation and Example |bank accounting (3)

Do you remember the four rules to convert information from a state declaration into a cash flow?Let's use it to create our cash flow status.

Cash Flow Status: Explanation and Example |bank accounting (4)

Our net income for the month in the profit and loss account is $ 3,500, which is still the same, since it is a total amount, no specific account.

Additions to cash

  • The depreciation is included in the expenditure for the month, but in reality it did not affect the money, so we add it to the money.
  • The accounts to be paid increased by 5,500 US dollars.This is a liability in the balance sheet, but the cash was not actually paid for these expenses, so we add it to cash.

Decreases to cash

  • The accounts of the accounts increased by $ 4,000.This is an asset registered in the balance sheet.In reality, however, we do not receive cash, so we will remove it from the available cash.

Our net -cashflow of operational activities increases 5,500 US dollars.

Cashflow of investment activities

Greg bought 5,000 US dollars in this accounting period and therefore spent 5,000 US dollars in investment activities.

Cashflow of financing activities

GRG did not invest any additional money in the business and did not receive cash flows from financing activities during this accounting period.

The cash flow for the month on July 31, 2019 was $ 500 as soon as we exceed all numbers.GGE started accounting with $ 5,500 in cash.After taking all additions and undertractions into account, he has 6,000 US dollars at the end of the time.

- -

The cash flow countries are powerful financial reports, provided they are used in connection with income and residual states.Annual financial statementswork together.

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