Cash Flow Statement

The cash flow statement is a financial statement that summarizes the amount of cash and cash equivalents entering and leaving a company.  This statement measures how well a company manages its cash position, meaning how well the company generates cash to pay its debt obligations and fund its operating expenses. The cash flow statement complements the balance sheet and accrual profit and loss statement.

There are two methods of calculating cash flow:

• Indirect method:  This report takes the net income, adjusts the cash balance based on the general ledger account to reconcile the cash balance.  When assets rise, cash is reduced.  When liabilities rise, cash is increased.  
• Direct method:  This report is based on a cash based accounting and can only be generated on an annual basis

Cash Flow Statement ERP Support Training

Indirect Method

Complete the following steps to generate a indirect cash flow statement:

1. Select Reports > Financials > Balance Statements > Cash Flow Statement - Indirect Method from the main EBMS File > Reports menu.

2. Set the desired report prompts.   

1. Set both the Period #1 Fiscal Year and the Period #2 Fiscal Year to the current fiscal year.  The report contains four columns; the current year and last year for both periods.

2. Set the Period #1 First Month and Last Month to the desired reporting month or quarter.

3. Set the Period #2 Frist Month to January and the Last Month to the same as the Period #1 Last Month to report the YTD change for the current fiscal year.   

3. Print or print preview report:
   

4. The (Section 1) Cash Flow from Operating Activities groups accounts by adjustments, assets, and liabilities.  The indirect cash flow statement starts with the Net Income or profit listed at the conclusion of a P&L statement and the equity section of the balance sheet.  Review Profit & Loss/Income Statement for more information on the Net Income value.

5. The Adjustments to reconcile Net Income to Cash adjusts the cash flow values based on items listed within the P&L statement such as fixed asset depreciation, gain on sale of assets, and other expenses and revenue accounts.

6. The Change in Current Assets accounts such as inventory and accounts receivables are negative if the balances have increased.   The higher the asset balance the less cash is available.

7. The Change in Current Liabilities values have the opposite effect on the cash flow balance.   The higher the balance (positive number) the more cash is available.  

8. Section 2 Cash Flow from Investing Activities will list any account that has a G/L classification > cash flow setting of Investment.  Each of these investments accounts effect the cash flow as listed.

9. Section 3 Cash Flow from Financing Activities lists any account with a cash flow setting of Financing.  See the end of this section for viewing instructions for the cash flow setting associated with the account classification.

10. The (Section 4) Net Increase in Cash and Cash Equivalents displays the cash change summary in beginning and ending period totals.  The Net Increase/Decrease in Cash & Equivalent total shows the amount of additional or less cash is available.   In the example above, the positive value indicates that more cash is available at the end of the reporting period than at the beginning.   If this value is negative, less cash is available at  the end than the beginning of the reporting period.  

11. The report Difference should be zero to indicate that the cash difference reconciles properly the same as a balance sheet.  A none-zero balance indicates a balance issue.  Review Balance Sheet to review the balance of the general ledger accounts.  

In summary this report arrives at the actual cash balance by taking the net income amount at the end of the P&L Statement, makes the adjustments so the user can tell why cash is high or low.  Often because of terms and delayed payments, the cash balance does not equal the profit balance.  In fact, often they can be quite opposite.   

Direct Method

Complete the following steps to generate a direct cash flow statement:

1. Select Reports > Financials > Cash Statements > Cash Flow Statement - Direct Method from the main EBMS File > Reports menu.

2. Generate the cash flow report as shown below:
   

3. Cash Flows from Operating Activities is a cash summary of operating activities.  Review Transactions > Create Cash Accounting Adjustments for an explanation of the cash accounting adjustments made by EBMS.

4. Cash Flows from Investing Activities will list any account that has a G/L classification > cash flow setting of Investment.  Each of these investments accounts effect the cash flow as listed.

5. Cash Flows from Financing Activities lists any account with a cash flow setting of Financing.  See the end of this section for viewing instructions for the cash flow setting associated with the account classification.

6. Net Increase in Cash displays the cash change summary.   In the example above, the positive value indicates that more cash is available at the end of the reporting period than at the beginning.   If this value is negative, less cash is available at  the end than the beginning of the reporting period.

7. The Ending Cash Balances displays the total cash available at the end of the period.

Assigning G/L Accounts to the Proper Cash Flow Section

The Cash Flow setting is directly related to the general ledger account Classification as shown below:

1. Open a financial account by selecting Financial > Chart of Accounts from the main EBMS menu.  
2. Click on the Advanced tab as shown below:  
   

3. Click Change to change the account Classification.  Note the associated Cash Flow setting listed next to the classification Description.  By setting the account Classification, the Cash Flow setting is associated with the general ledger account which effects the account location and calculation of the cash flow report.