Creating a Cash Flow is challenging, but often this is often, really what the Finance Department want to see.
It is challenging because, usually, the General Ledger / Chart of Accounts doesn't provide the details necessary to produce the Cash Flow statement.
Cash Flow Methodology
There are two methods of creating a cash flow, the "direct method" or the "indirect method". The majority of financial statements use the "indirect method":
|Profit before interest and income taxes|
|Add back depreciation|
|Add back amortization of goodwill|
|Increase in receivables|
|Decrease in inventories|
|Increase in trade payables|
|Less Interest accrued but not yet paid|
|Income tax paid|
|Net cash from operating activities|
You will require to determine which General Ledger Accounts are grouped into the various Cash Flow Movements. Some will be from within the "Income Statement" and some are "Balance Sheet" movements.
Here is a simplified example of how to create a Cash Flow statement, with integrated the Income Statement (Profit & Loss) and Balance Sheet.
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