Get an accurate assessment of your cash flow as your maintain and grow your business. Understand where the main sources of your cash are coming from and identify any unexpected cash flow leaks. Could you be running out of cash while earning a profit? Do you know how loan payments are impacting banking account balances? Have you drawn out too much money from your business account? Begin to understand the tricks of reading your cash flow statement with the help of Shockley Bookkeeping.
1. Look at Your Statement from the Start and End of a Designated Period
Understand that your cash flow statement provides you information on your revenue earned and expenses paid out. It should be an accurate representation of the money within your bank account from the start to the end of any period.
2. Understand the First Section: Cash from Operating Activities
The first section of your cash flow statement covers the actual products or services you provide customers. Depreciation or amortization is generally the first line of the first section. It was added back in when removed as an expense in your P&L statement but is not viewed as cash.
3. Understand the Second and Third Sections: Cash Flow from Investing Activities and Cash Flows from Financing Activities
Anything your business owns is covered under investment activities. Any outstanding loans you either took out or gave to other business entities would fall under financing activities. If you spent money and bought something, you will have a negative number. If you sold something or received a loan, you will see a positive number.
4. Learn How Accounts Receivable and Inventory Impact Your Business
When accounts receivable becomes larger, such as an unusually high amount of stock in your inventory, any difference is deducted. When receivables become smaller, as in cases when you are low in your warehouse inventory or you received payment from customers, you have additional cash, and this is reflected back into your decrease.
5. How to Read Accounts Payable
The larger the accounts payable amount, the more available cash is on hand. You add the difference in. When you pay down payables, there is less cash, and it is subtracted.
Find a Small Business Accounting Partner in Oklahoma
Shockley Bookkeeping and Tax Services in Broken Arrow, OK helps business owners with small business accounting needs. Contact a professional accounting expert at (918) 615-8380 to improve your understanding of your cash flow and address outstanding small business accounting and financial concerns today.