The Statement of Cash Flow is one of the most important financial reports as it provides a comprehensive overview of your company’s cash inflows and outflows. It offers critical insights into your business’s liquidity and financial health, and it helps business owners and managers improve decision-making.
In this article, we’ll tackle the Statement of Cash Flows, when it’s used, and how to generate the report in QuickBooks Online.
What is the Statement of Cash Flows?
The Statement of Cash Flows is a financial statement that provides a detailed account of an organization’s cash inflows and outflows during a specific period. It is a vital component of a company’s financial reporting, alongside the Income Statement (Profit and Loss Statement) and the Balance Sheet. While the Income Statement focuses on a company’s profitability and the Balance Sheet offers a snapshot of its financial position, the Statement of Cash Flows helps you understand how money moves in and out of the business.
The Statement of Cash Flows is typically divided into three main sections:
- Operating Activities: This section outlines cash inflows and outflows related to a company’s core operational activities. It includes revenue, expenses, and items like accounts receivable and accounts payable. A positive number in this section indicates that the company generated cash from its day-to-day operations.
- Investing Activities: Here, you’ll find information about cash transactions related to investments in assets such as property, equipment, or securities. Investing activities can include purchasing or selling long-term assets. A positive number in this section indicates cash inflow from investments.
- Financing Activities: This section covers cash flows related to financing the business. It includes activities like raising capital, repurchasing stock, or repaying loans. A positive number here means that the company received cash through financing activities.
How to Run the Statement of Cash Flows in QuickBooks Online
QuickBooks Online makes it easy to generate the Statement of Cash Flows. Here’s a step-by-step guide on how to run it:
Step 1: Access Reports: From the dashboard, click on the Reports tab on the left sidebar.
Step 2: Search for the Statement of Cash Flows: In the “Reports page, search for “Statement of Cash Flows.” QuickBooks Online provides a pre-designed template for this report.
Step 3: Select the Date Range and Customize the Report: Scroll to the top of the report page, and from here, you can specify the date range for which you want to generate the Statement of Cash Flows. You can choose from options like “This Month,” “Last Month,” “This Quarter,” or customize your own date range. Also, you can customize the report (e.g. choose how you want to display the columns).
Customizing a cash flow statement in QuickBooks Online
Step 4: Run the Report Click the “Run Report” button. QuickBooks Online will generate the Statement of Cash Flows based on your chosen parameters.
Sample cash flow statement in QuickBooks Online
Step 5: Review and Export: Once the report is generated, review it carefully. You can export it as a PDF or Excel file if you need to share it with others or keep a copy for your records.
Why is the Statement of Cash Flows Important?
The Statement of Cash Flows is a critical tool for both internal and external stakeholders for several reasons:
- Assessing Liquidity: It helps businesses and investors evaluate a company’s liquidity, which is the ability to meet its short-term obligations. A healthy operating cash flow is a positive sign of financial stability.
- Financial Decision-Making: It aids in decision-making by providing insights into whether a company can invest in new projects or cover its debts without jeopardizing its core operations.
- Detecting Financial Issues: The statement can reveal financial troubles early, allowing management to take corrective actions before problems become severe.
- Investor Confidence: For investors, understanding a company’s cash flow situation is crucial in assessing the company’s financial health and stability.
- Lender Confidence: Lenders use this statement to determine whether a company is creditworthy and can service its debt obligations.
The Statement of Cash Flows is an essential financial document that offers insights into the financial health of a business. QuickBooks Online simplifies the process of generating this statement, making it accessible to businesses of all sizes.