How to make a cash flow statement

Among the 4 most important financial statements prepared at the end of the accounting period, the Cash Flow It is the one that allows you to have the best vision regarding the finances of the company

Whoever is in charge of the company’s accounting needs to know how to prepare it from simple calculations and the income statement.

Step by step how to do the cash flow statement

To make the state of Cash Flow follow this step by step:

Step 1: First of all, you must determine what the initial balance is, always considering the company’s cash. Take into account the accounting period, its beginning and the cash balance. Look for the balance in the flow statement of the previous period, you will find it as the final balance, if you cannot find it, calculate it taking into account the balance. In the latter case, you must add the total of cash and equivalents in Current Assets.

Step 2: Then, from the operations generated by the company, you will determine the cash. Cash Flow Operating activities will be the first section and will represent the total cash produced by the company, for example due to the sale of products as the main operation. Exclude all non-cash transactions.

Note that depreciation expenses will be added back to the income statement because they are not representative of the cash outlay.

Step 3: Now take into account the company’s expenses for Investment activities. For example, if the company acquired shares or large machinery that it paid for in cash. Then add the capitalized acquisitions for the accounting period. It will be a negative amount because it is representative of a cash outlay.

Step 4: Now determine all the amount of cash raised by the business or used due to financing activities. It will be the cash flow that comes from financing activities. It is the section where you add the cash that comes from shares, debt, dividends that were paid to shareholders and debt repayment.

To arrive at this type of cash flow, add the cash that the company received, for example for bonds, as part of the issuance of debts or shares and subtract the cash that was paid for the amortization of long-term debts and then subtract the cash. that were paid to investors such as dividends.

Step 5: Make a compilation of the cash flows. The 6 games are:

Start corresponding to the initial cash balance, the cash flow from investing activities, the flow from operating activities and the final cash statement and supplementary information. You will complete the cash flow statement by presenting the values ​​you previously calculated by completing each section.

In complementary information you will complete with notes on major transactions that were not carried out in cash, such as the exchange of shares for bonds, interest and taxes paid. This is the most common method called indirect.

Example cash flow

The cash flow statement is nothing more than a document that shows the cash inflows and outflows that the company made in a given accounting period, it is the most basic accounting that is carried out by reviewing all cash movements by dividing the categories in operating activities, financing activities and investing activities.

Objectives of the cash flow statement

Its objective is to control the situation in which the company finds itself for the production of capital in cash and credit equivalents with their movements and dates.

The cash flow statement can be developed from the direct method and the indirect method,

When developing with the direct method, the main cash inflows and outflows of the company are verified.

The indirect method uses internal processes to determine the total capital of the company always in cash.

There may be variation between income and expenses and then it will be the final result and this process will allow the company to take measures based on knowing its outgoing and incoming cash.

If in an income statement of Sales it has a value of 1000 and the cost of sales is 400, the gross profit would be 600.

  1. If the selling expense has a value of -50 and there was a depreciation of -20, the operating profit is 530.
  2. If the business has other income of 100, with interest of -20, the profit before taxes is 610. If the taxes have a value of -61, the net profit is 549.

Indirect cash flow method

The indirect method to develop the cash flow is carried out according to the profit that the income statement showed and then proceeds to the purification until reaching the cash balance.

Parts of the cash flow statement

It is made up of three parts:

Operating activities, financing activities and investment activities. Each activity determines the consolidated cash flow in the individual results. The balance sheet for the last two years and the income statement for the last year are taken into account.

How to calculate cash flow in a business

Step 1: In a spreadsheet, three columns will be for operating activities, investing activities, and financing activities. You need to open the bank statements for the month and you will calculate the cash flow, then you can check the negative or positive cash flow for the month.

Step 2: Take the operating activities and you will calculate the net cash flow. You will add all the cash inflows with the income from debtor account collection, cash interest and dividends received and you will calculate the cash outflow with the payments for goods, promissory notes, taxes paid and you will subtract the cash outflow from those inflows. This value will be placed in operational activities and if it is a negative value you will place the sign (-)

Step 3: You will determine the net cash flow considering the financing activities by adding the cash inflows generated by equity or debt financing and you will add the cash outflow from financing activities. Then you will subtract the cash outflow from those inflows and enter the value in financing activities.

Step 4: You will determine the net cash flow of investment activities detailing the profits of the company according to the investments for the purchase of bonds or shares. You will add all the cash inflows, the money outflows and subtract them to place the value in investing activities.

Step 5: You will add the three columns and it will be the total of the monthly cash flow.

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