The sixth report in the “Taking your Financial Reports to the Next Level with Management Reporter” series is the “Statement of Cash Flows.” There are often multiple financial or strategic opportunities available to a company, but not a lot of cash for those opportunities. The need for sufficient cash to cover operating expenses needs to be balanced against opportunities to pay off debt or to make operating investments. The Statement of Cash Flows report helps in evaluating past operations and in planning future investing and financing activities.
This video contains how to create a Statement of Cash Flows report for your business.
In summary, the key features included in the “Statement of Cash Flows" report were:
Links to other posts in this series:
In order to have 100% correct amounts in the sections for Investing and Financing activities, create two accounts for each long term asset and liability account and equity accounts. For example, Purchase of fixed assets, Disposal of fixed assets, Increase in long term loan, Payoff of long term loan. Then any corrections and adjustment to these accounts will be reflected in the net change. You would eliminate looking at only debits or credits. We see just enough adjustments to these types of accounts that the Statement of Cash Flows won't be quite correct when just depending on debits and credits.
How do you account for the Dividends Paid account when it is classed as a Equity Account with a "normal debit" balance? Because it is an Equity Account, it is untouched by the year end close and must be closed to retained earnings via Journal Entry in the following year. This causes Period 1 and our year end cashflow to be out of balance by the dividends paid in the prior year due to the manual journal entry.