What is the purpose of a Cash Flow Statement?Ī cash flow statement is an important tool, not only because it gives you an idea of whether you are properly managing your cash flow, but also helps to put your income statement and sales figures into perspective. Examples of outgoing cash flow include paying back loans and interest, purchasing inventory, and paying salaries for yourself or your staff. You can’t pay your loans, or yourself, with a promise of future income.Īn example cash flow statement will also list any outgoing cash flow. However, while the sale of a mattress that is to be paid for at a later date is entered into your total sales revenue, any cash that hasn’t yet been received is deducted from your cash flow statement. ![]() Unlike a profit and loss account, which highlights revenue through sales, expenses and any losses suffered during the fiscal year, a cash flow statement for your shop will only highlight the revenue from operations, investments, and financing that are real cash operations.įor example, if you are running a retail shop where you extend credit to your customers, such as a mattress company that allows its customers to pay over the course of three months with no interest, any sale of a mattress that is paid up front would enter into your cash flow. However, even for companies that aren’t publicly traded (on the stock exchange), it is a great tool to help you understand your cash flow: where it is coming from, and where it is being spent. What is the purpose of a Cash Flow Statement?Ī cash flow statement is a financial form that is required for any publicly traded companies, alongside the balance sheet and profit and loss account.And in this article, we’ll explain what a cash flow statement is, why it’s important, how to prepare one, and provide an example of a cash flow statement for your shop. We’ve broken down these and other questions you may have into easy to digest articles. It’s important not to get bogged down by these foreign-seeming concepts. From business plans to tax reports, from profit and loss accounts to cash flow statements… It can all seem a bit overwhelming. As a new independent retailer, there are a number of terms and customs that you will need to familiarise yourself with.
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