There are three primary financial statements required by any businesses; the balance sheet statement, income statement, and cash flow statement . Cash flow often provides the insight of daily operations. There are three activities covered in the cash flow: operations, investment, and financing. The operation part focuses on the daily business transaction, such as the received cash from sales and services and expenses spent for payroll, vendor invoice, rent, tax, and utilities. The investment relates to cash flow for capital expenditures, purchase and sales of stocks, and other investment. While the financing part provides the information relates to cash from loans, installment payment, and cash transactions with owners.
Cash flow statement is necessary for the owner to:
- make cash forecast. An established cash flow statement help the owner to recognize the cash position as the basis of all activities and monitor the cash position.
- determine the financial policy. The cash flow statement helps the owner to set the financial policy applied in the future, such as to decide the machinery replacement, etc.
- monitor the cash position. It is crucial to monitor the cash movement.The owner can compare the original forecast with the actual one to find out the trend of cash movement.
- analyze the cash planning result. Comparing between the projected cash flow statement and the actual one to analyze the cash planning succeed and to take measurement accordingly.
As the known fact, cash is king, applied in any businesses.The cash flow statement provides the important information relates to the business activity with the cash provided by the cash flow statement. It enables owner to take a glance the reasons for cash balance changes from one period to the following period. Preparing the cash flow properly will help the owner to set the budget for the following period and recognize the potential financial problems may occur.
