Management accounting presented inunderstandablehumanaccessiblelanguage.

Management accounting presented inhumanaccessiblelanguage.

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Reporting

Information section

How to prepare a cash flow statement

How to prepare a cash flow statement

This statement shows the flow of funds through the bank accounts and cash office of the enterprise.

There are two ways how to construct it:

  1. Direct method.
  2. Indirect method.

I will not describe the second method as I have never used it. If you are interested in it, you can visit this page and this one

Let’s turn to the direct method.

The statement is divided into three sections:

  1. Operating;
  2. Investing;
  3. Financing.

The operating section includes the cash flows in terms of basic company’s activity.
The investing section shows the cash flows connected with the long-term investments into other business direction or new fixed assets.
The financing section contains the operations connected with funds raising, pays-off and loans servicing as well as the investments and withdrawals.

To verify the correctness of the prepared statement you should check the cash balances at the beginning and at the end of the accounting period:

  • cash balance at the beginning of the accounting period is to conform to the line 2.9, Assets, Balance sheet for the previous month,
  • cash balance at the end of the accounting period is to conform to the line 2.9, Assets,  Balance sheetfor the accounting period.

This statement is important while planning company’s activity. It clearly shows the lack of money (such situation is called «Cash deficiency»).

But in daily management this form of report is used mainly at the big enterprises where the owners are interested in anonymous figures of income and losses.

If you do not have the activity planning at the enterprise and you are not active in financial and investment spheres, do not bother yourself with it. It will be useless as it will not show the sum you earned or spent. It can show just the cash flows through the bank accounts and cash office of the enterprise as well as the cash balances at the beginning and at the end of the accounting period. All this information can be received from the standard account reports such as “Bank accounts” and “Cash office” prepared with any accounting software.

To control your money wisely it is better for you to introduce the operational plan (for a day, week, month) and report on its implementation which will provide you with the expected and existing payments. There is no standard form of operational plan, each company constructs it considering its own peculiarities. As a rule, it is a table with two sections:

  1. Expected revenues for the planned period (day, week, month);
  1. Expected costs for the planned period (day, week, month).

    If you need the above-mentioned statement in Excel format (*.xls), do not hesitate to contact me. I will send it to you.

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