The cash flow statement is an important report that can provide insight into your company’s financial condition by showing how your business generates and spends cash over a period of time.
My business is profitable, but where is the cash?
Answering this common question is exactly where the cash flow statement comes into play. An income statement may reveal profit, but if that income was used to pay off debt or purchase new equipment, a business’ bank balance may not show an increase. Conversely, a business’ income statement could show a loss, but after factoring in non-cash expenses such as depreciation or cash received from financing, the bank balance may reflect a hearty increase.
The activities reported on a cash flow statement are separated into three sections:
- Operating activities include cash generated in the normal course of business. Cash received from sales or used to fulfill payables are considered operating activities.
- Investing activities include the purchase or sale of assets, such as cash paid for capital improvements.
- Financing activities includes items involving a business’ owners or debtors, such as money received for the sale of stock or from bank financing.
Using QuickBooks to run a cash flow statement
QuickBooks automatically classifies general ledger accounts into “Operating,” “Investing,” or “Financing” based on the account type. With the QuickBooks desktop version, users can change the classification of accounts, if necessary, by following these steps:
- Log in as an admin user
- Go to Edit and select Preferences
- In the Preferences window, select Reports & Graphs
- Go to the Company Preferences tab
- Select the Classify Cash button
- In the Classify Cash window, you can change the accounts to Financing, Investing or Operating
To restore QuickBooks’ default selections, select the Default button on the Classify Cash window.
QuickBooks Online users also have access to the cash flow statement report. Classifications can be changed by editing and changing the account type under the chart of accounts.
Stephanie Stevens, CPA, is a senior accountant and a Certified QuickBooks ProAdvisor in Kaufman Rossin’s Fort Lauderdale office. Kaufman Rossin is one of the top accounting firms in the U.S. and offers QuickBooks training, accounting and consulting services for businesses in a variety of industries. Stephanie can be reached at firstname.lastname@example.org.