A Cash Flow Statement

One of the financial statements prepared for your new small business will be a cash flow statement.

What are They?

Cash flow statements are statements which report on the flows of cash in and out of the business and are of vital importance to businesses of all sizes.

Why Do You Need One?

Although a profit and loss statement summarizes the operational transactions of the business (expenditure and revenue) and calculates the profit generated from the trading activities of the business, it does not provide any information about the investing and financing transactions of the business.

The fund statement or cash flow statement provides the business owner with a report on the liquidity of the business and discloses the extent to which the business has generated funds from operations (trading and other activities) over the reporting period.

How are Cash Flow Statements Prepared?

There are two approaches to presenting cash flows from operating activities. The first is the direct approach, which involves reporting gross operating cash inflows and gross operating outflows. An example of a statement which follows this format can be downloaded or printed by clicking this link.

The second approach is the indirect approach, which is based on the profit and loss statement but adjusted to reflect the cash flow from activities. With this approach you need to reconcile the cash flows with the operating profit after tax as reporting in the Profit and Loss or Income Statement. An example of a statement which follows this format can be downloaded or printed by clicking this link.

Other Small Business Financial Statements

If you landed on this page without seeing the other pages that relate to the other financial statements that you will be preparing for your small business, click on any of the links below.

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