Welcome to the Fit Small Business QuickBooks Online training course! In this lesson, we’re going to cover the importance of reviewing your statement of cash flows and how to prepare a statement of cash flows with examples in QuickBooks Online.
To complete this lesson, you can either watch the video below, read through the step-by-step instructions, or do both. Let’s begin!
What is a Statement of Cash Flows?
The statement of cash flows shows the flow of cash within the business, including where it came from and how it was spent during a specific time period. Depending on the type of transaction, cash flow is categorized into 3 types of activities:
- Operating Activities – This section shows how much cash was generated from operations which make up the day-to-day running of the business. For example, for our fictitious plumbing company Paul’s Plumbing, the cash generated from the sale of plumbing products and services would be considered operating activities.
- Investing Activities – This section shows how much cash was generated from assets purchased for the business. For example, say Paul purchased a truck to use in the business. Regardless of whether the transaction was paid in cash or financed, it would appear under investing activities. In addition, any portion that was financed will also appear under financing activities.
- Financing – This section is the cash that has come in or gone out of the company for the purpose of financing all of the other business activities. For example, any funds invested in the business by the owner would show up here. Also, if a portion of the truck that Paul purchased was financed, then the loan would also be categorized in this section.
Why is the Statement of Cash Flows Important? – Statement of Cash Flow Example
Cash flow is essential to stay in business. If you don’t have enough cash to meet your obligations and to reinvest, then you won’t be in business very long. In the How to Run a Profit & Loss statement lesson, we discussed the importance of reviewing your income and expenses and looking for trends that can give you insight into the contributing factors to your “bottom line.” In the How to Run a Balance Sheet lesson, we discussed how that report will provide you with the net worth of your business as of a point in time. However, these two reports alone cannot tell you everything that you need to know to make good business decisions.
You need all 3 reports–the P&L Statement, the Balance Sheet, and the Statement of Cash Flows–to give you a complete picture of the health of your business. In the next section, we will walk through the components of the Cash Flow Statement. It includes figures that you may also see in both the P&L Statement and the Balance Sheet.
What are the Components of the Statement of Cash Flows?
To help demonstrate the components of the Cash Flow Statement, we will take a look at the Cash Flow statement for our fictitious company, Paul’s Plumbing. As we discussed previously, there are 3 sections of the Cash Flow Statement, as highlighet below by the three red boxes in the statement of cash flows example. There are also several different terms you need to understand.
- Net Income – This figure will come directly from the “bottom line” of your Profit & Loss statement.
- Net cash provided by operating activities – This section is comprised of the net cash inflow and outflow of day-to-day business operations.
- Net cash provided by investing activities – This section is comprised of the net cash inflow and outflow of any investments made in the business. Paul purchased a truck to use in his business, so that purchase is listed here as a cash outflow item.
- Net cash provided by financing activities – This section is comprised of the net cash inflow and outflow of any type of financing that supports the business operations. In this example, Paul financed his truck, so the amount of the loan that he took to purchase the truck is listed in this section as a cash inflow item.
- Net Cash Increase for the period of $9,867.72 is the total of all 3 activities as follows:
- Operating Activities: $7,611.73
- Investing Activities: (-$10,000.00)
- Financing Activities: $12.255.99
- Cash at the end of the period – This total is cash at the beginning of the period, which is $5,500 in this example, plus the net cash increase of $9,867.72. That gives a total of $15,367.72.
How Do I Run a Statement of Cash Flows in QuickBooks Online?
Step 1 – Navigate to the Report Center
From the Home page, click on Reports located on the left menu bar as indicated below.
Step 2 – Report Center
Click on the All Reports tab. Statement of Cash Flows is the fourth report listed as indicated below.
Step 3 – Report Filters
From this screen, you have several options to choose from as indicated below:
- Print – You have the ability to print this report.
- Email – You can email this report to anyone that you would like to review it (i.e. CPA or tax professional)
- Export – You can export this report to Excel and make notes or do further analysis.
- Customize – This feature allows you to customize a number of areas of the report, including but not limited to the following:
- General info: Date range
- Level of detail to show: One total column or one column for each month
- Header/Footer: Change or add title or page #
- Numbers: Select font for numbers
- Save customizations – Allows you to save any custom changes that you have made to the report so that you can use them again.
- Transaction Date – Select the time period that you would like to run the report for.
- Calendar – You can enter a specific date range that you would like to run the report for.
- Click Run Report button once you have made all of your selections.
Step 4 – Display Report
Click the Finish button, and your Statement of Cash Flows will display on the screen like the one below for Paul’s Plumbing.
Recommended Action Plan
Now that you have a better understanding of what the Statement of Cash Flows will tell you about your business and how to create one in QuickBooks Online, there are a few things you should implement as soon as possible.
As you now know, the Statement of Cash Flows pulls several key numbers from both the Profit and Loss Statement and the Balance Sheet. Therefore, it is very important that the following have taken place before you prepare a Statement of Cash Flows:
- Be sure QuickBooks is up-to-date with all income and expenses.
- Reconcile all bank and credit card accounts.
- Resolve any discrepancies found in your review of the P&L statement and the Balance Sheet report.
- Make sure all assets and liabilities have been recorded in QuickBooks
- Review your Statement of Cash Flows on a monthly basis.
That wraps up the section on How to Run a Statement of Cash Flows in QuickBooks Online. The next lesson in our QuickBooks Online Training Course will be How to Run an Accounts Receivable Aging report in QuickBooks Online. In this course, we will discuss what the Accounts Receivable Aging report will tell you about your business and how to create an A/R Aging report in QuickBooks Online.
To access this lesson or any of the others in the series, click here. For a free 30-day trial of QuickBooks Online, click the link below.