A cash flow statement is an important financial document used by businesses. Also known as a statement of cash flows, it provides insight into the money coming into and going out of a business. Regardless of your business’s size or operations, you may want to create a cash flow statement. You can use it to secure financing, plan a budget and more. While there are different ways to create a cash flow statement, they all revolve around three main parts.
#1) Operating Activities
You’ll need to include a section for operating activities in your cash flow statement. It’s arguably the most important section in cash flow statements. As the name suggests, the operating activities section focuses on operational activities. It contains all incoming and outgoing money that’s directly associated with a business’s products or services.
Examples of operating activities include the following:
- Revenue from product or service sales
- Accounts receivable
- Employee payroll
- Rent and lease payments
#2) Financing Activities
In addition to operating activities, cash flow statements should contain a financing activities section. Financing activities include transactions associated with a business’s financing. If your business is financed with a loan, for instance, you’ll have to make payments to the lender. Loan payments such as this are considered financing activities. And like other financing activities, you should record them in the financing activities section of your business’s cash flow statement. If you make payments to a lender for a loan — or if a borrower makes loan payments to your business — you should record them in the financing activities section of your business’s cash flow statement.
#3) Investing Activities
Finally, the investing activities section focuses on investments. Investments, of course, will affect your business’s cash flow. You may purchase assets, such as equipment, for business. Alternatively, you may sell some of your business’s assets. These are considered investing activities, and you should record them in the investing activities of your business’s cash flow statement.
They may sound complex, but cash flow statements use a relatively simple format. They feature three main parts: an operating activities section, a financing activities section and an investing activities section. The operating activities section covers all incoming and outgoing cash associated with operational activities. The financing activities section covers all incoming and outgoing cash associated with financing. And the investing activities section covers all incoming and outgoing cash associated with investments.
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