Monthly Cash Flow Statement: How to Prepare and Analyze

A monthly cash flow statement is a financial tool that helps you track your income and expenses over a 30-day period. It's a simple yet powerful way to understand where your money is coming from and where it's going.

To prepare a monthly cash flow statement, you'll need to gather information on your income and expenses. This includes your salary, investments, and any other regular income, as well as your rent, utilities, groceries, and other necessary expenses.

By analyzing your monthly cash flow statement, you can identify areas where you can cut back on unnecessary expenses and make adjustments to achieve your financial goals. For example, if you notice that you're consistently overspending on dining out, you can make a plan to cook at home more often.

A well-prepared monthly cash flow statement can also help you anticipate and prepare for large expenses, such as car repairs or medical bills, by setting aside money each month in a separate fund.

A cash flow statement is essential for any business, and it's not just about forecasting future surpluses and shortfalls. The main components of a cash flow statement are cash flow from operating activities, cash flow from investing activities, cash flow from financing activities, and disclosure of non-cash activities.

The cash flow forecast template is a valuable tool for detailing the cash coming into and going out of your business on a monthly basis. It helps determine whether your company has enough cash and liquidity to pay for expenses.

To prepare a cash flow statement, you'll need to consider the following key entries: receipts, direct costs, overheads, total cash payments, net cash flow, opening bank balance, and closing bank balance. These entries will help you calculate the net amount of cash flowing in and out of your business.

To prepare a cash flow statement, you'll need to choose a method. You can use either the direct method or the indirect method. The direct method involves listing all cash receipts and payments during the reporting period.

Deciding which method to use depends on your business needs. The indirect method starts with net income and adjusts for changes in non-cash transactions.

Before you begin, collect the necessary financial statements, including the income statement and balance sheet. These statements provide information on revenues, expenses, and net income, as well as the company's assets, liabilities, and equity at the beginning and end of the period.

You'll also need to determine the starting balance of cash and cash equivalents at the beginning of the reporting period. This value can be found on the income statement of the same accounting period.

To prepare the cash flow statement, you can use a template, such as the cash flow forecast template available in PDF and Excel formats for download. This template will help you detail the cash coming into and going out of your business on a monthly basis.

Here's a breakdown of the key components you'll need to include in your cash flow statement:

By following these steps and using a template, you can create a cash flow statement that provides a clear picture of your business's cash flow and helps you make informed decisions about your finances.

When a company sells a long-term asset for an amount different from its book value, an adjustment is needed to the net income on the Statement of Cash Flows (SCF). This adjustment ensures that the entire proceeds from the sale are reported in the correct section of the SCF.

The book value of an asset is determined by combining its original cost and accumulated depreciation. For example, a delivery truck with an original cost of $20,000 and accumulated depreciation of $18,000 has a book value of $2,000.

If the truck is sold for $3,000, a gain of $1,000 is reported as a result of the difference between the sale price and the book value. This gain increases the company's net income by $1,000.

Any gain or loss on the sale of an asset must be deducted from or added to the net income in the operating activities section of the SCF to accurately reflect the company's cash flows.

The monthly cash flow statement is a snapshot of your business's cash inflows and outflows over a specific period. It's a crucial tool for understanding your company's financial health.

To calculate cash flow, you can use various formulas, such as the free cash flow formula: Free cash flow = Net income + Depreciation/amortization – Change in working capital – Capital expenditure.

The net cash flow formula is another important one: Net cash flow = Cash receipts - Cash payments.

The direct method of calculating cash flow from operating activities involves taking all the cash collections from operations and subtracting all the cash disbursements from operations.

Here are some key components to consider when creating a monthly cash flow statement:

These formulas will help you understand your business's cash flow and make informed decisions about your finances.

The net cash flow formula is a simple yet powerful tool for understanding a company's financial performance. It's calculated by subtracting cash payments from cash receipts: Net cash flow = Cash receipts - Cash payments.

To calculate net cash flow, you can separate cash flow by category: operating, financial, and investment. This helps you understand where your business is generating cash and where it's being spent.

The net cash flow formula is essential for determining a company's ability to pay its debts and invest in new opportunities. A positive net cash flow indicates that a company has more cash flowing into it than out of it, while a negative net cash flow suggests it's spending more than it earns.

Here are the key components of the net cash flow formula:

By understanding these components, you can make informed decisions about your business's financial management and strategy.

Here's an example of how to calculate net cash flow using the formula:

Cash receipts: $12,000

Cash payments: $9,000

Net cash flow = $12,000 - $9,000 = $3,000

This means that the company has a net cash flow of $3,000, indicating that it's generating more cash than it's spending.

The direct and indirect methods of preparing a cash flow statement are two different approaches to determining cash inflows and outflows.

The direct method reports cash payments and receipts in a straightforward manner, using actual cash amounts.

This method is easier to understand, but it can be more time-consuming because it requires accounting for every transaction that took place during the reporting period.

Most companies prefer the indirect method because it's faster and closely linked to the balance sheet.

The indirect method begins with net income from the income statement and makes adjustments to "undo" the impact of accruals made during the reporting period.

Some common adjustments include depreciation and amortization.

The indirect method also provides a means of reconciling items on the balance sheet to the net income on the income statement.

This can be useful for identifying increases and decreases in the balance sheet that are the result of non-cash transactions.

Both the direct and indirect methods will result in the same number, but the process of calculating cash flow from operations differs.

The indirect method is the dominant method used and is accepted by Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS).

Calculating cash flow is a crucial step in running a business, and it's essential to understand what your business working capital needs are and plan ahead to ensure your ability to finance growth. This will help you avoid the catastrophic cash crunch that often affects early-stage businesses.

Colin Darretta, Co-founder & CEO of Innovation Department, emphasizes the importance of understanding your business's financial health and planning for the future. He notes that knowing your present, future, and predicted cash flows is essential for making informed decisions.

Calculating cash flow is more than just keeping track of what's coming in and out of your business. It's about understanding the problems that might pop up and solving them before they hit. This is where having organized accounting comes in handy.

Here are some key factors to consider when calculating cash flow:

These factors are critical for meeting your short-term and long-term obligations to suppliers, employees, and lenders.

A cash flow surplus occurs when your business has more cash coming in than going out, which is a great position to be in. This surplus can help you plan for the future and make smart financial decisions.

Consider what you would do with excess cash if you had it. Would you invest it, save it, or use it to pay off debts? Cash flow statements can help you answer this question and make informed decisions about your business's financial health.

A cash flow shortfall occurs when your business has more cash going out than coming in, which can be challenging. During a shortfall, you may need to make tough decisions about how to manage your finances and prioritize your spending.

To perform well during a shortfall, it's essential to have a plan in place. This plan should include strategies for reducing expenses, increasing revenue, and managing your cash flow.

Here are some key questions to ask yourself when analyzing your monthly cash flow statement:

A monthly cash flow statement is a tool that helps you understand how much money is coming in and going out of your business each month. It's typically presented in a table format, with columns for income, expenses, and net cash flow.

To create a monthly cash flow statement, you'll need to track your income from various sources, such as sales, loans, and investments. You can see an example of this in the income section of our previous example, where we listed $10,000 in sales revenue.

Your expenses, on the other hand, will include costs like rent, utilities, and supplies. For instance, in our example, we had $5,000 in rent expenses.

Company A's cash and cash equivalents began the year at $10,746 million. This is according to their Statement of Cash Flows for the year ended September 28, 2019.

To understand the cash flow for January, we need to consider the financial statements and transactions that occurred during that month. However, since the article doesn't provide specific information about Company A's January transactions, we'll have to look at a different example.

Let's take a look at Good Deal's June transactions, which show how depreciation expense is added back to net income on the cash flow statement.

Here's a table comparing the cash flow statement for the month of June to the statement for the six months ended June 30:

As we can see, the net change in cash explained by operating activities for the six months ended June 30 is a negative $50. This is because the increase in Inventory and Supplies was not good for cash.

Company A had a net income of $10,000 in February, which is a significant increase from the previous month.

This is primarily due to the $15,000 increase in sales revenue, which offset the $5,000 increase in cost of goods sold.

The company's accounts receivable decreased by $3,000, resulting in a $3,000 decrease in the accounts receivable balance.

Company A's cash outflow for taxes was $2,000, which is a decrease of $1,000 from the previous month.

The company's February cash flow statement shows a net increase in cash of $6,000.