cashflow statement business english

    Cashflow statement is essential to accrual accounting method. When using accrual accounting, actual company transactions occur at a different time from when they are stated. Therefore, in order to keep track of the cash flow and to prevent cash deficit, a cash flow statement is prepared. It is important to note that not all cash flows are external; internal ones are also of importance to a business. Small business can refer to bank statements to keep track of their cash flows, but large companies resort to an indirect method, otherwise resorting to the sources and uses of funds.

    Management of cash flow ensures a business that they can continue operating without having to worry about cash deficit. That is why it is an important part of budgets as well. It enables businesses to predict and prevent possible cash deficits throughout the year. If a company pays its suppliers faster than it receives money from customers, it is likely to face cash flow problems, therefore, it needs to review its credit terms and devise a system that manages its account receivable. If a business realizes that they may face issues with regards to the amount of cash in hand, they can take a loan or announce a capital raise.

Cashflow Categories

    A cash flow statement is usually prepared annually, but it can also be prepared weekly, monthly, or for each quarter. A business generally needs to have enough cash to manage the following one or two months. Cashflows consist of those from operations, investment activities, and financing activities. All cash inflows and outflows related to each category determine the net cashflow resulting from them. If a company’s the amount of payments and inflows are the same at the end of the fiscal year, and it does not have any initial cash at the beginning of the year, it will fail to provide cash for the next financial year from within the company. For an example of cashflow statement, refer to:



Cashflow from operations

    The cashflow from operations includes all inflows and outflows resulted for the main operations of the business. This could be selling a product or providing a service. Inflows come from company sales. The amount can be determined from sales records. In case of future budgeting, the sales department can provide an estimate for the sales in the following year. The outflows typically include salaries, procurement of raw materials, and operating costs.


Cashflow from investment activities

    Cashflows related to investment activities and returns on these investments are included in this category. They are irrelevant to the main operations of the business. Investment activities include adding or selling of assets and realization of potential opportunities. Bonds and other investments belong in this category. Any investment made in considered an outflow while selling assets, bonds, and reverse activities become inflows as they provide more cash to the company. Returns on these investments also provide additional cash.

Cash flow from financing activities

    Financing activities include bank loan or capital raises. Short-term loans are included in this section. Capital raises also provide additional cash in case a company requires more funds to run operations. A capital raise is possible though reserves, additional cash/funds, debt raise, and more. On the other hand, dividend payments and repayment of interests and principal on loans are considered cash outflows.


Tax payable

    Taxes are annual outflows which have to be taken into account when preparing an annual cashflow statement. Previous payments indicate the percentage of the outflow related to tax payments.



    A healthy initial cash for a new fiscal year requires smart cashflow management. Cashflow statement enables companies to make sure they have enough cash to run the business and acquire more. Cashflows determine where the cash comes from and where it is spent, allowing management to regulate the flows and use them to generate more money. Tax payments are a constant in the equation and have to be taken into account to prevent cash deficits. In case of a deficit, a business can ask for a loan or raise its capital.


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