How to Build a Cash Flow Statement – Video

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What is the Cash Flow Statement

This video tutorial walks you through the process of creating a cash flow statement, making it perfect for beginners. We start by explaining the importance of cash flow statements in financial analysis and then dive into the details of how to prepare one.

A Cash Flow Statement is a financial document that tracks the flow of cash in and out of an organization. It details the cash receipts and payments over a specific period, such as a month, quarter, or year, and helps determine the initial and current cash balance of the business. The statement provides a clear picture of the company's liquidity by showing where the cash comes from and how it is spent.

The Cash Flow Statement is divided into three main sections:

Operating Activities: This section includes cash inflows and outflows related to the core business operations. It covers transactions such as cash received from customers and cash paid for operating expenses like salaries and supplies. This section helps assess the cash generated or used by regular business activities.

Financing Activities: This section records cash flows related to financing the business, including transactions such as obtaining or repaying loans, issuing or buying back shares, and paying dividends. It provides insight into how the business raises capital and returns profits to shareholders.

Investing Activities: This section details cash flows from investment-related transactions, such as purchasing or selling assets like equipment, property, or securities. It reflects the business's investment strategy and its long-term asset management.

By summing up the amounts from these three sections, you get the net cash increase or decrease for the reporting period. This figure indicates whether the business has generated more cash than it spent or vice versa during that time. Finally, at the end of the statement, you will see the total cash available to the business on a specific date. This final figure should match the cash balance in the company’s bank account and its on-hand cash. The Cash Flow Statement is crucial for understanding the company's financial health, guiding investment decisions, and ensuring the business has enough liquidity to operate smoothly.

cash flow statement

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