Last updated on Jan 15, 2024
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Identify the cash sources
2
Identify the cash uses
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3
Calculate the net cash flow
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4
Add the net cash flows
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5
Compare the beginning and ending cash balances
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Check for errors
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Here’s what else to consider
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A cash flow statement is a financial report that shows how much cash your business generates and uses in a given period. It helps you assess your liquidity, solvency, and profitability. But how do you reconcile the beginning and ending cash balances on a cash flow statement? Here are some steps to follow:
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- Clint Engler CEO/Principal: CERAC Trader Strategies Inc. FL USA.....… 1
1 Identify the cash sources
The first step is to identify the cash sources that increase your cash balance. These are the inflows of cash from operating, investing, and financing activities. Operating activities are the core business operations that generate revenue and expenses. Investing activities are the purchases and sales of long-term assets, such as property, plant, and equipment. Financing activities are the transactions that affect your equity and debt, such as issuing shares, paying dividends, or borrowing money.
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Reconciling cash balances on a cash flow statement involves adding the net cash flow from operating, investing, and financing activities to the beginning cash balance. This should equal the ending cash balance reported on the balance sheet. Any discrepancies that highlight potential errors or timing differences will need further investigation.
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2 Identify the cash uses
The second step is to identify the cash uses that decrease your cash balance. These are the outflows of cash from operating, investing, and financing activities. Operating activities include payments to suppliers, employees, taxes, and interest. Investing activities include acquisitions of other businesses, investments in securities, or loans to others. Financing activities include repayments of loans, repurchases of shares, or redemption of bonds.
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3 Calculate the net cash flow
The third step is to calculate the net cash flow from each category of activities. This is the difference between the inflows and outflows of cash. For example, if you received $100,000 from operating activities and paid $80,000 for operating expenses, your net cash flow from operating activities is $20,000. You need to do the same for investing and financing activities.
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4 Add the net cash flows
The fourth step is to add the net cash flows from each category of activities. This is the total change in your cash balance for the period. For example, if your net cash flow from operating activities is $20,000, your net cash flow from investing activities is -$10,000, and your net cash flow from financing activities is $5,000, your total change in cash is $15,000.
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5 Compare the beginning and ending cash balances
The fifth step is to compare the beginning and ending cash balances on your cash flow statement. The beginning cash balance is the amount of cash you had at the start of the period. The ending cash balance is the amount of cash you have at the end of the period. To reconcile them, you need to add the total change in cash to the beginning cash balance. For example, if your beginning cash balance is $50,000 and your total change in cash is $15,000, your ending cash balance should be $65,000.
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6 Check for errors
The final step is to check for errors in your cash flow statement. If your ending cash balance does not match the actual cash balance in your bank account, you may have made a mistake in recording or categorizing your cash transactions. You need to review your cash receipts and payments and make sure they are accurate and consistent with your income statement and balance sheet.
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7 Here’s what else to consider
This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?
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Financial Management
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