Besides discipline, determination, right people and passion, cash is one of the major ingredients to initiate and run a small business successfully. The way a small business owner manages his cash flow has a huge impact on the growth of his business. Thus, understanding and maintaining cash flow statements is an ability that a small business owner must possess.
The statement of cash flow is one of the most important financial statements for any business. It shows the particulars of cash transactions (both inbound and outbound) taken place during a specific time period. Given that it's a portrayal of the financial stability of any company, a cash flow statement is considered vital in the process of financial reporting. Any business that earns less cash as compared to what it spends quickly fritter away their financial resources. Thus, the statement of cash flow helps any business to keep track of their cash activities in order to seize the issue before it goes out of hand.A cash flow statement has three important sections:
This is the very first part of the statement where the transactions related to operations are listed. This segment is important as it classifies if the business is making cash from its day-to-day activities or not.
The next segment consists of every single particular of cash arrivals and expenditure for activities related to investment. It demonstrates the outcomes of investment choices regarding income generation from these kind of activities.
The third section includes any long term debts or liabilities; for instance, the due bonds and notes. Moreover, you can also find those transactions listed in this section which change the retained earning accounts balance. Thus, this segment helps business owners and investors to decide if financing activities are supporting cash generation for the business.
The last segment of the cash flow statement comprises of any additional particulars regarding tax and interest payments along with each and everything that is considerable though does not take in cash activities.Cash flow statements are an indispensable part of your business; however creating them manually is a tedious job. But if you're using an accounting software like LedgerMax, you can generate cash flow statements with minimal time and effort. It incessantly records your earnings and expenses and thus, contains all the particulars required to generate the statement of cash flow automatically saving you a lot of time and hard work.