Statement of Cash Flows – Why so important?
If you are a business owner, you may have a thorough understanding of how you generate income for your business. However, if you don’t also have an understanding of the statement of cash flows, your businesses finances could be lacking.
A statement of cash flows shows how much cash is going in or out of the business. The indirect statement of cash flows is most common.
This means that the presentation starts with net income, adds back (or subtracts) revenue (expenses) that are noncash items, and then shows the changes in balance sheet accounts by dividing the changes into three different categories, 1) Operating, 2) Investing, and 3) Financing.
Statements of Cash Flows are important for a variety of reasons. If you anticipate using a lot of cash for a project, such as a new building or investing in a new line of inventory, you will need to know if you can expect to have the cash available or if you will have to borrow. You do not want to be surprised by having high income levels but low cash flows. One of the most significant ways you can change you cash flows in the ordinary course of business is by changing when customer payments are due and by changing when you pay expenses. Cash flows are also important when borrowing since lenders want to make sure you will have sufficient cash flows to pay back your loans.
If you are a QuickBooks user and interested in seeing your Statement of Cash Flows, it is already available. Simply click “Reports” then go to “Company and Financial” and the Statement of Cash Flows is the second to last report.
If you have questions on how to improve your cash flows or how to create a statement of cash flows, call Davis & Hodgdon Associates, CPAs today.
Davis & Hodgdon Associates has been assisting businesses and individuals in the Burlington Vermont Metro area for more than 20 years. If you have any questions or concerns please feel free to call 802.878.1963 or email [email protected].
Alyssa McBride, Associate Accountant
Davis & Hodgdon Associates CPAs
