There are three fundamental financial statements for tracking and measuring a business’ cash flow statement Profit and loss statement Balance sheet.
A profit and loss statement compares revenues against costs and expenses to determine if a company is profitable.
A balance sheet compares what a business owns to what it owes in order to indicate the amount of working capital, cash reserves available to cover short-term commitments and recurring expenses.
A cash flow statement brings information from the profit and loss statement and balance sheet together by analysing the flow of cash through the company in terms of day-to-day operations, capital investments and financing activities.
Operational cash flow literally includes all the expenses that go into making and offering the goods and services a business provides. Like rent, IT costs, wages, marketing etc. The money that came out of your bank accounts that to pay for things and stuff. It also includes all the money that comes into a business from sales and payments. Like paid invoices for a service you provided. Or your eftpos settlement amount for goods and services you have sold.
Financing cash flow is the money that comes from loans or lines of credit. Depending on your business model, this can also include investors.
Investment cash flow represents the purchase of long-term assets, like buildings and equipment.
Every business financial statement has a specific function. What a cash flow statement does differently is that it helps identify patterns in terms of how and when money is coming into or leaving a business, aka cash flow forecasting.
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