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Cash Flow Statement

Definition: A financial statement that reflects the inflow of revenue vs. the outflow of expenses resulting from operating, investing and financing activities during a specific time period

Cash flow statements and projections express a business's results or plans in terms of cash in and out of the business, without adjusting for accrued revenues and expenses. The cash flow statement doesn't show whether the business will be profitable, but it does show the cash position of the business at any given point in time by measuring revenue against outlays.

The cash flow statement should be prepared on a monthly basis during the first year, on a quarterly basis for the second year, and annually for the third year. The following 17 items are listed in the order they need to appear on your cash flow statement:

  1. Cash refers to cash on hand in the business.
  2. Cash sales are income from sales paid for by cash.
  3. Receivables is income from the collection of money owed to the business resulting from sales.
  4. Other income is income from investments, interest on loans that have been extended, and the liquidation of any assets.
  5. Total income is the sum of total cash, cash sales, receivables and other income.
  6. Material/merchandise is the raw material used in the manufacture of a product (for manufacturing operations only), the cash outlay for merchandise inventory (for merchandisers such as wholesalers and retailers), or the supplies used in the performance of a service.
  7. Direct labor is the labor required to manufacture a product (for manufacturing operations only) or to perform a service.
  8. Overhead is all fixed and variable expenses required for the operations of the business.
  9. Marketing/sales is all salaries, commissions and other direct costs associated with the marketing and sales departments.
  10. R&D is labor expenses required to support the research and development operations of the business.
  11. G&A is labor expenses required to support the general and administrative functions of the business.
  12. Taxes are all taxes, except payroll, paid to the appropriate government institutions.
  13. Capital represents the capital requirements to obtain any equipment needed to generate income.
  14. Loan payments are the total of all payments made to reduce any long-term debts.
  15. Total expenses are the sum of material, direct labor, overhead expenses, marketing, sales, R&D, G&A, taxes, capital and loan payments.
  16. Cash flow is the difference between total income and total expenses. This amount is carried over to the next period as beginning cash.
  17. Cumulative cash flow is the difference between current cash flow and cash flow from the previous period.
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