G'day Justin Hogg here from Right Source talking things accounting and giving you
an understanding of what you can use your financial statements for and why we
make them, so today we're going to talk about the cash flow statement probably
one of the least utilised financial reports that businesses have access to
in the simplest accounting packages like Xero right through to the major ERP so it
is basically in high level it's the cash movements that happen in your business
now this is better in some respects to then your profit and loss because it does
reflect cash which is more real, profit and loss can be a little more it's still
reflecting how profitable your business is but it doesn't always necessarily
mean you spent the money or if you've received the money cash flow tells you
this is what's happened in your bank account and why your bank account has
gone up or why your bank account has gone down so let's dive in and have a
look through how a cash flow statement is made up and what we're going to talk
through today is specifically a direct cashflow statement the first aspect of
a direct cashflow statement you'll see is your operating cashflow now
operating cash flow reflects the cash that you've received or spent on revenue
in your business or expenses so that's it so it's about what's gone out of your
business in terms of stationery, inventory, paying for fuel, paying for
wages, all the cash that's gone out and also all the cash that's come in for
services that you've provided that have actually been paid for and so this is
why operating cash flow is a very important metric when I'm looking at a
business because if that's a positive cash flow that shows that your business
is generating money which is fundamentally one of the most important
things in business is to know that your business, your core operations are
generating money now you will also see other items in your operating cash flow
which would be often tax potentially interest revenue those amounts obviously
are relating to the operations of your business so they form part of the
expense sometimes they're broken out sometimes
they're included just revenue and expense cash flow
and that's that's fine, if you're operating cash flow is all about your
revenue and expenses why doesn't it equal your profit and loss? That is what we can
use another type of cash flow statement to help explain in that because your profit
loss will have non-cash items going through it and this makes more sense if
you look at an indirect cash flow which will be a video we'll do next week so if
you want to get a deeper understanding as to why your operating cash doesn't equal
your profit and loss stay tuned and check out next week's video otherwise let's
keep going through the cash flow so the operating cash flow is sort of
representative of your profit and loss operations the next parts in your cash
flow and this is why I find this really important, these things don't pop up in
your profit and loss you don't really see them in
your balance sheet either so the first one is your cash flow from your next one
sorry is your cash flow from investing activities now this is where you spend
money or receive money relating to assets in your business so if you need
to buy a car, if you sell a car, if you and I'm talking selling a car in terms
of your operations if you have assets in your business that you sell, so say
you have an office building that you own and you sell that cash will come
into your business you will see that cash that comes in through your cash
flow statement and this allows you to understand how much it's costing you in
terms of cash to maintain the assets of your business so you might not see a
whole lot of entries or lines in the investment, cash flow from investments
area but it's quite important to understand well this gives you an idea
of what you're spending on the business to grow the assets that you have in your
business, the next part in the last section in your cash flow is your
financing activity so this is where you get cash in or to the business to allow
you to fund the operations of the business so that could be from yourself
as an owner for contributing cash into the business or could be from debt
financing where you're getting a loan to bring cash into the business it can also
show where you're paying dividends out or repaying that financing so this again
is another aspect of your business in terms of how you're
financing it and the cash flow shows you the impact of these financing activities
are having it on your cash balance now in looking at all three of these things
together you understand how profitable your business is how much you're
spending on maintaining your assets and then how much you're needing in terms of
financing to support that that process and each one of those is important in
its own right but together they give you an indication of why your cash at Bank
your cash balance has moved from one figure to another figure over a period
of time and that then informs you on how your business overall is running so that
in a nutshell is what a cash flow statements all about if you'd like to
see more information on how the accounting world works and what your
accountant is trying to do for your business there's some more videos you
can check out on the YouTube channel if you'd like some templates that you might
be able to use in your business you can definitely access them through the
YouTube channel and some links on there otherwise feel free to subscribe until
next time we'll be talking about some more accounting stuff I look forward to
joining you then it's Justin Hogg from Right Source