A cash flow statement is a report that analyzes the financial movements that affect cash flow.
Cash flow is classified in the following ways:
- Operations can be calculated using a direct or indirect method that is explained as follows:
- The indirect method starts with the net income from the income statement and adjusts it according to the net changes of accounts receivable (A/R), accounts payable (A/P), and inventory
- The direct method sums cash transactions between our customers, suppliers, and employees
- Investing includes purchasing and selling assets, such as offices or equipment
- Financing includes receiving or paying a bank loan
To create a cash flow statement, we have to find every G/L account that affects the accounts that represent cash assets. In order to be successful at this, we have to team up with an accountant who can help us find and classify these accounts. When the total cash flow in this statement equals the net change of all cash assets then we've successfully found all the accounts.
In the next exercise, we will create a high-level cash flow statement using the more popular indirect method.
We start to create our cash flow statement by cloning the balance statement that we created in Exercise 3.2 and then go through the following steps:
- Change the placeholder expression to the following code:
only({1<[Account - Report]={'CashFlow'}>} [Account - Order]) - Change one of the expressions to calculate net movements across all accounts:
sum({$<[Account - Report]={'CashFlow'},[AsOf Months Ago]={0}>} [GJ Amount] * [Account - Factor]) - Change one of the expressions to calculate the relative percentage between each amount and the total cash flow:
sum({$<[Account - Report]={'CashFlow'},[AsOf Months Ago]={0}>} [GJ Amount] * [Account - Factor]) / sum({$<[Account - Report]={'CashFlow'},[Account - Concept]={'Total Cash Flow'},[AsOf Months Ago]={0}>} Total [GJ Amount] * [Account - Factor]) - Delete all other expressions.
- Change the set analysis in the sort expression so that it refers to
[Account - Report]={'CashFlow'}.
The magic we do to create this report is in the financial report metadata that we reviewed earlier in this chapter. We use the Factor field the following table to add or subtract amounts as defined by the accountant. This method of report making is not always easy to grasp at first, so we should take our time to explore and experiment with the metadata.
The most important analysis introduced by the user story in the beginning of the section is to see what percentage of cash is received or spent within each group of activities. The cash flow statement looks distinct for different businesses during each stage in their lives. A start-up will not have much cash flow in operations, but it will have a lot of investment and financing activities. A mature company will have a more balanced cash flow with the greater amount classified as operations. A simple bar chart to that compares these three principal activities over time would be the optimal visualization.