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

< span                            An interesting aspect of           class="cap">The         investing activities assets is     Cash Flow Statement is made     that they, unlike operating        up of three sections. The first       assets, generally do not affect    section is operating activities.      the company’s profit. In other     Operating activities include your     words, investing assets do not     company’s profit or loss and          represent revenue or expense       non-cash items that affect your       items.                          profit without affecting cash.         The third and final section of  Examples of these types of            the Cash Flow Statement is         non-cash expenses are                 financing activities. Financing    depreciation and bad-debt             activities are debt and equity     expense. Also included in this        items. If you increase or          section are changes to your           decrease your debt, that change    operating assets and liabilities.     is included in financing           Operating assets and liabilities      activities. Equity changes such a  include accounts receivable,          capital contributions or           prepaid expenses, accounts            shareholder distributions also     payable and accrued liabilities.      are reflected under financing      A common feature of operating         activities. Like investing         assets and liabilities is these       activities assets, financing       items have been reflected in the      activities liabilities and equity  Profit & Loss Statement in a          do not represent revenue or        period different from the period      expense items.                  in which they were paid.               The sum of the three sections:  The second section of the Cash        Operating activities, investing    Flow Statement is investing           activities and financing           activities. Investing activities      activities is your cash flow for   are items such as property and        the period being reported. A       equipment or loans receivables.       positive number indicates an       increase in cash and decrease          Cash flow is an indicator of    indicates a decrease in cash. Now     where you are spending your money  it’s time to take a closer look       and the future strength of your    at the Cash Flow Statement and        business. Small business owners    see why your cash flow is             generally do not realize the       different from your profit.        importance of comparing their      Compare your cash flow to your     past years Cash Flow Statements    profit. If your cash flow is          to measure their business growth.  higher than your profit, you are      Some of them are ignorant of the   either liquidating assets or          basic rules that one should        increasing your debt, which is        follow to compare their past Cash  negative for your business. On        Flow Statement with the current    the other hand, it could be that      one. So now that you are aware of  you are increasing your capital,      these formulas take a few minutes  which is a positive for your          and review your Cash Flow          business.                          Statement. Compare it with last    If your cash flow is less than     year and see how your business is  your profit, you are increasing       progressing. You will be           your assets, such as purchasing       surprised at how much valuable     property and equipment for future     information is contained in your   growth or paying down your debt.      Cash Flow                          These are both positives for your     Statement. business. But it could mean that      end>About the                   your money is being tied up in        Authoraccounts receivable because           id="authorbio"                     collections have deteriorated and     class="membersnoticewhite">Linda   your business is weakening. Or it     Dawson is a Certified Public       could be that you are decreasing      Accountant with more than 25       your capital, which is a negative     years experience helping small     for your business.                 and start-up businesses. Dawson &  Associates has just introduced        .com. Or check out the Dawson  its latest service, the Virtual       & Associates website at Accounting Office. Learn more         href="http://www.dawsoncpa.com">D  about this exciting new product       awsoncpa.com   at                         href="http://www.myvao.com">MyVao      Published At: www.isnare.com Permanent Link: http://www.isnare.com/?aid=304806&ca=Finances Got a question about this article? Ask the community! Article Tags: activities, assets, cash ...Archive >>