Producing and using a statement of cash flow for your business.
By Marty McGhie
On the opposite side of the ledger, current liabilities work
the other way. For instance, if your accrued payroll balance
has gone up from one month to the next, you have experienced
an increase in available cash"?instead of paying out the cash,
it has been accrued and will be paid in the subsequent period
(at least it better be). These changes in current assets and
liabilities are netted against the net income (with adjustments
discussed), giving you a total of net cash provided by/(used
by) operating activities.
This section provides useful analysis of the means by which
you are paying for your capital additions. Seeing how your cash
is spent on assets during the month can assist you in making
future decisions on what to buy and how to buy it. This second
section would also include any interest earned from long-term
Where to find the cash
At the bottom of the statement of cash flows is a total of these
three sections, producing either a net increase or decrease in
cash during the period. This number is added to, or deducted from,
your cash balance at the beginning of the period, resulting in your
ending cash balance, which ties out to your balance sheet.
Although it's just a brief overview of this financial tool, I think
you can clearly see the value of regularly reviewing the cashflow
statement. The next time you find yourself asking that
never-ending question"?"Where did all our cash go?"?you'll
know where to look for the answer.
Marty McGhie (firstname.lastname@example.org) is VP finance/
operations of Ferrari Color, a digital-imaging center with Salt
Lake City, San Francisco, and Sacramento locations.