Cash Flow In And Out Of The United States Products Beyond Taxes – How Your Cash Flow Statement Can Help You Run Your Business

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Beyond Taxes – How Your Cash Flow Statement Can Help You Run Your Business

The statement of cash flows consists of three parts. The first part is operational activities. Business activities include the profit or loss of your business and the non-cash items that affect your profit without affecting money. Examples of these types of non-cash expenses are depreciation and bad debt expenses. Changes to your business assets and liabilities are also included in this section. Business assets and liabilities include accounts receivable, prepaid expenses, accounts payable and accrued liabilities. A common characteristic of business assets and liabilities is that these items were shown in the income statement in a period different from the period in which they were paid.

The second part of the cash flow statement is investing activities. Investing activities are items such as property and equipment or loan receivables. An interesting aspect of investment activity assets is that, unlike business assets, they generally do not affect the company’s profit. In other words, investment assets do not represent income or expense items.

The third and last chapter of the cash flow statement is the financing of activities. Financial activities are debt and equity items. If you increase or decrease your debt, this change is included in the financing activities. Changes in equity, such as capital contributions or stockholders’ dividends, are also reflected in financing activities. Like the assets of investing activities, financing liabilities and equity do not represent income or expenses.

The sum of the three sections: operating activities, investing activities, and financing activities is your cash flow for the reporting period. A positive number means an increase in money, a decrease means a decrease in money. Now it’s time to take a closer look at the cash flow statement and find out why your cash flow is different from your profit.

Compare your cash flow to your profit. If your cash flow is higher than your profit, you are either cashing in assets or increasing your debt, which is negative for your business. On the other hand, you may be increasing your capital, which is positive for your business.

If your cash flow is less than your profits, you increase your assets, such as buying real estate and equipment for future growth or paying off your debt. Both are positive for your business. But it could mean that your money is tied up in receivables because collections have gone bad and your business is doing poorly. Or it could be that you are reducing your capital, which is negative for your business.

Cash flow is an indicator of where you are spending your money and the future strength of your business. Small business owners are generally unaware of the importance of comparing their cash flow statements from previous years to measure the growth of their business. Some of them do not know the basic rules to follow when comparing their historical cash flow statement with the current one. Now that you are familiar with these formulas, take a few minutes to review the statement of cash flows. Compare it to last year and see how your business is progressing. You’ll be surprised how much valuable information your cash flow statement contains.

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