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One of the important things that business people need to do is make financial reports, of course, making these financial reports so that you can find out every income and expenses in the business. The financial report you need to make is a cash flow statement, how do you prepare the cash flow statement?
In addition to financial statements, you may often hear the term cash flow statement or cash flow statement. If you can’t compile a financial report, at least you can make a typical flow statement or cash flow statement.
The cash flow statement is important for you to know whether or not the company or business you are running is healthy. Therefore, in studying taxes this time we will learn about cash flow statements. Let’s take a look at the following tax study article!
What is a Cash Flow Statement or Cash Flow Statement?
The Statement of Financial Accounting Standards (PSAK) mentions a cash flow statement as one that must be made per period. A cash flow statement or cash flow statement is a report that contains income and expenses that occurred. In a cash flow statement, information is presented in the form of cash income, the amount of cash received, expenses, privileges, debt payments, and so on.
Benefits of a Cash Flow Statement
Information from the cash flow report obtained will be very useful for the company or its users, especially a complete and good depreciated cash flow report.
1. Evaluate the company’s capabilities
The cash flow statement will help in knowing whether a company is healthy or not. A healthy company can be seen from its ability to pay its operating expenses such as employee salaries and pay dividends.
2. Basis for decision making
Through the information presented in the cash flow statement, users or companies, especially the management, can use it as a basis for making decisions. Users or companies can also use it to develop strategies or future steps to deal with changes that may occur.
3. Knowing the Company’s Capabilities
The cash flow statement also helps the company to know its ability to generate cash flow. Therefore, a cash flow statement is very important for a company or business.
Prepare Cash Flow Statement
A cash flow statement or cash flow statement is a financial report that provides relevant information regarding the company’s cash inflows and outflows. The reported cash flows consist of several sources, namely operational activities, corporate financing activities, and investment activities.
The preparation of this cash flow report aims to determine the amount of cash income and expenditure of the company in real time.
There are 2 methods that you can use to prepare a cash flow statement, namely the indirect method and the direct method, you can choose only one method when preparing it according to the situation and current conditions.
Indirect Method
In this method, the statement of cash flows relates to the flow of business activities, cash from financing, and cash from investments. The preparation of the report is carried out in the following steps,
The first is to prepare an income statement, so you can see the condition of the company in the current period, whether it is making a profit or experiencing a loss.
You also need to prepare a balance sheet from the current period and the previous period, these two reports with different periods are used to obtain and compare financial activity data in the current year period.
Next is to adjust the net income whose data you get from the income statement, this is done to get cash flow from operating activities.
After that, you need to make corrections to the effect of transactions in the cash book, only then will you get investment and funding cash flows.
Only then do you create a cash flow statement using the indirect method.
Direct Method
You can also make a cash flow statement using the direct method, in this method, the data used is sourced from the bank’s cash book and also the petty cash book. The preparation of the report is carried out in the following steps,
Perform cross-checks or reconciliations on bank cash books, check cusps, checking accounts and petty cash books.
Next you need to cross-eliminate all transactions related to the cash book.
After that, you need to classify the various types of income and expenses in the cash flow statement.
Then a new cash flow statement is made.
Well, those are two ways to compile a cash flow report that you can choose, one of which, by compiling the report will certainly make it easier for you to monitor and evaluate business developments.
Structure of the Sections in the Statement of Cash Flows
Before learning how to prepare a cash flow statement, we must first know the 3 important parts in a cash flow statement. Each entity that prepares a statement of cash flows must have different items, but generally they are classified as one of three. Here are 3 important sections in a cash flow statement:
1. Operating Activities Cash
The first section of a cash flow statement is usually the cash statement of operating activities. This one part relates to operational activities that occur within a company, be it income or expenses. The revenue section will usually record the income received such as commissions, royalties received, fees received, and the like. Meanwhile, the expenditure section is usually salary payments, electricity payments, rent payments, and the like.
2. Cash Investing Activities
The next section is the cash statement of investing activities. Companies must often make investments in an effort to develop the company. The cash statement of investing activities usually relates to the acquisition or disposal of assets in the long term. Acquisitions are related to expenses such as buying fixed assets, long-term assets, and also intangible assets. While disposal is related to income such as selling shares, selling land, selling equipment, and so on.
3. Cash Funding Activities
The last part, namely cash financing activities, is usually related to funding or financing activities such as injection or paying capital. This section has a function to determine the composition of the company’s capital, whether the capital increases or decreases because it is used to fund. Cash financing activities are closely related to the capital and debt owned by the company. Examples such as bonds, paying off credit, paying dividends, and the like.