Accounting For Small Businesses QuickStart Guide by ClydeBank Business

Author:ClydeBank Business
Language: eng
Format: epub
Publisher: ClydeBank Media LLC
Published: 2017-06-12T22:37:53+00:00

The statement of cash flow clarifies the inflow and outflow of cash over a specific period of time and is used to ensure that the company has enough cash-on-hand to expediently pay its liabilities without having so much cash sitting around that it becomes a fraud risk. The statement of cash flow is generally broken down into cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. Operating activities include the operation of the business, receiving revenues, paying employees, and paying for supplies and other expenses. Investing activities track the cash that’s been invested in equipment, real estate, or other major assets. Financing activities refer to cash coming in through capital investments, either by the owner or by an outside party. Owner’s withdrawals of cash from the business are also tracked under financing activities. The statement of cash flow below, from a government municipality in the Philippines, shows how the statement is broken down into its component parts.

Even though the example statement of cash flow (Fg. 11) refers to a rather large entity, cash flow management is exceptionally important to small businesses. Findlaw.com reports that hiccups in cash flow are one of the most frequent problems that entrepreneurs encounter. Part of the problem here is that your small business may find itself at times with more cash-on-hand than actual income, meaning your net income as reported on the income statement may be less than your cash balance for the same period. As a result, business owners sometimes use up cash faster than their business can generate it, leading over time to financial insolvency.

There are a multitude of viewable sample images available on the Internet of all the statements covered in this chapter. Unfortunately, most of them are not licensed for commercial use, so we can’t include them in this text. To look at examples, do a Google image search for the terms below.

Income statement

Statement of owner’s equity

Balance sheet

Statement of cash flow

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