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Three Things You Should Know About Your Cash Flow Statement

18 Jul Three Things You Should Know About Your Cash Flow Statement

Posted at 08:00h in

Virtual Accounting

by Becky Brown  •  0 Comments

three-things-you-should-know-about-your-cash-flow-statement.jpgAs a business owner, you have important information to consider on a daily basis. There are always decisions to be made and plans to be put into action. There are some aspects of running a business that can be put off until later, but accurate accounting is not one of those. Whether you do your own accounting or hire someone to do it for you, it is important for you to regularly look at and understand the various financial statements related to your business. One of the main financial statements that you will have for your business is a cash flow statement. This statement is relatively easy to understand as long as you keep a few things in mind.  

  1. The cash flow statement provides you with important financial information about your business.

The cash flow statement can help you understand how much cash your company has on hand during a specified time frame. If the time frame of the cash flow statement is one year, then you can look at it and see all the cash that the business has received and paid out over that year. It can be a useful tool to help you make decisions related to your business. For example, you can look at the cash flow statement for a specified time frame and see how much money the company paid out in expenses such as inventory and taxes. Looking at what you historically paid out for different expenses can help you plan for future expenses and keep the business from running too low on cash.

  1. As the business owner, you can determine the time frame of the cash flow statement.

You can compile a cash flow statement for any time frame you choose, as long as you have maintained detailed financial records. The time frame you choose will depend on what information you want to gain from the statement. For example, if you have a business that is seasonal you may want to look at a cash flow statement for the four months out of the year when you are the busiest. On the other hand, you can choose to look at a longer time frame to gain a more complete understanding of how much cash has come in and gone out of the company.  

  1. The cash flow statement is a snapshot of what has occurred, but not necessarily a predictor of what is coming.

A cash flow statement is different than an income statement because it is not prepared using an accrual basis of accounting. For example, if you sell a large piece of your inventory and allow the customer to finance the purchase, then that money is not going to show up on the cash flow statement until the payments start coming in. You know that the money is supposed to come in eventually, but the cash flow statement only includes money that is already there. In addition, it does not include information about upcoming expenses, only expenses that have already been paid. That is why it is important to use your cash flow statement along with other types of statements, such as a balance sheet and income statement, to get a clear picture of the overall financial wellbeing of your business.


Topics: Virtual Accounting