Cash flow statement to understand your business financial health

Optimize your business's financial health and cash flows effortlessly with cash flow management software. Plan short-term goals, generate cash flow statements instantly, and make informed decisions for a peaceful business.

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How does Gofrugal accounting software help manage statement of cash flows?

Gofrugal's integrated cash flow accounting software is spread across every branch of accounting for a business, especially for Retailers, Restaurateurs, and Distributors. Gofrugal aims to make businesses grow along with them. So, all types of financial reports, especially growth-infused reports such as cashflow statement, are generated within the software with the POS data. In order to provide you with actionable insights for your business, Gofrugal AccountsEasy includes the following benefits in your cash flow statement format:

Summarised and detailed cash flow statement, both group wise and ledger wise

Forecasts cash flows with a single click of projected cash flow report

Eliminates the need for maintaining multiple software with direct POS integrated accounting module

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Benefits of Cash Flow Statement

Measure cash profits

Track cash flow from operating, investing, and financing activities to understand the source and the application of your cash flows

Predict future

Analyse trends in cash flow movement to predict your future cash flows so that the owner can be prepared for the working capital to be brought into the business

Monitor liquidity

Understand the liquidity position of the business so that it is insured against the perils of uncertainty when outflows have to be managed without sufficient inflows

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How to prepare the Cash Flow Statements?

Generating cash flow statement manually involves various transactions-cum-ledgers to be revisited from books of accounts and arranging them under each specific format, such as payables, receivables, etc. But with Gofrugal's integrated accounting software, AccountsEasy, the story is different. The cash flow statement can be generated with a click.

Step 1: Login to Gofrugal ERP and open the integrated accounting software, AccountsEasy

Step 2: Open the reports and select the cash flow statement. We can find the statement of cash inflows and outflows for any given financial period under the transaction category.

That's it. It's as easy as opening a document. Once the report is opened, the transactions made in the ERP and accounting software are listed automatically in the Cash flow statement in a consolidated manner. This shows the exact flow of cash inside the business.

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What is a Cash Flow Statement?

Cashflow statement is a type of financial statement that helps businesses understand and analyse their cash inflows and outflows. Any company's cash flow is its soul. Cash flow statement provides information on the company's capacity for cash generation and forecasts its ability to avoid a cash crunch.

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Importance of Cash Flow Statements

In order to determine the true health of a company for a sustainable future, cash profit is more important than book profit. A company's wealth must be strong for it to be in good health, and the cash flow statement format can be used to analyse and forecast this wealth. Even though they have significant loans, cash flow inside their company enables them to settle their debts, control their expenses, and invest in other businesses to increase their profits.

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Cash Flow Statement Format

As per the Cash flow statement definition mentioned above, the format of the Cash flow statement template is comprised of three main sections: Cash flow from Operating activities, Investing, and Financing activities.

Cash flow from Operating Activities

The flow of cash in and out because of operational activities for the running of the business falls under this category. This tracks the flow of cash from the regular activity of the business, which brings in the major money by selling the products or services.

Cash flow from Investing Activities

The inflow and outflow of money as a result of investments that the company makes in equipment, assets, or other companies. The capital expenditures made in expanding the business over land and constructing buildings for future operations are also classified as investing activities.

Cash flow from Financing activities

The flow of cash in because of the financial investments made into the business by investors, banks, equity etc., and out flow of cash out for paying to investors, debts, and dividends falls under the financing activities of cash flow statement.

Methods of Cash Flow Statements

The cash flow of a business can be determined by two different methods - Direct and Indirect method of Cash flow statement. Each method is not as tiring as the other. Both solve the same purpose of finding the flow of cash using various cash flow statement templates, but the mode of calculation varies.

Direct Method

A cash flow statement generated using the direct method involves the complete cash transactions made for a period. The cash transactions include all receipts and payments made in cash and cash equivalents. Then it summarizes each transaction into categories and arrives at the final number. In fact, cash flow is actually calculated by finding the difference between the opening and closing balances of cash and cash equivalents.

Indirect Method

The Cash flow statement generated from the indirect cash flow method starts where the Profit and Loss statement (P&L) ends, beginning with "Net profit as per P&L" as the first line item. It includes adjusting for non-cash, non-operating transactions, and working capital changes to calculate the cash generated from operations. The indirect cash flow method categorizes the summary of transactions into three different categories: Operating activities, Investing activities, and financing activities, as mentioned above. Depending on the type of transaction made, it should be added under the relevant category and adjusted.

The major difference between direct and indirect cash flow statement format is that the indirect cash flow statement format summarizes both cash and non-cash transactions at a detailed level. Whereas the direct cash flow statement format summarizes cash transactions and arrives at the conclusion of what has happened between the opening and closing balance.

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What are cash and cash equivalents in the Cash Flow Statement?

Cash and cash equivalents are part of the balance sheet that determines the value of the company considering the assets, which are in the form of liquid cash. Cash is the currency that comes into a company through transactions. Cash equivalents include commercial paper, marketable securities, short-term government bonds, and short-term bank deposits.

Cash flow statement example

From this cash flow statement format, we can infer that the net cash flow for the financial year 2021-2022 is ₹6,13,000. When we look at the cash flow from operations format, we can clearly see the company is pumping in good value, which in turn has put their cash flow from operations on the positive side.

Generating more money from their operations made them invest in the equipment. Since they have made a huge investment in equipment that will help them increase profits in the future, their cash flow from investing falls in the negative zone.

Then comes the cash flow from financing. They have brought in new investments from a bank, yet they paid back some of the money to their investors, which made the net cash flow from financing activities positive. By summarizing the cash flow from these categories, it's clear they had a good turnover in the financial year and plenty of cash flow in the business.

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How to forecast and manage cash flow using cash flow management software?

A cash flow statement is a financial instrument that helps analyze the flow of cash in an organization. In order to forecast cash flow in an organization, there are various ways to do so. One such way is listing all the transactions, grouping them, and summarizing them to arrive at a final cash flow. Another option is to obtain the cash flow for a given period with a single click. This is the way of generating it using Gofrugal. Forecasting cash flow is the biggest part, yet analyzing, managing, and improving it is the most essential and real purpose for a cash flow statement. By forecasting the cash flow statement, the following metrics can be monitored and improved in order to increase the flow of cash in the business:

1. Bring in your money that customers owe
Identify the money that you earned from your customers but is yet to be brought into your hands with the cash flow statement, and send them a follow-up email or reminder with their outstanding statement.

2. Cut the costs that sleep in your inventory
Easily forecast the money that sits in your inventory as a dormant item and start selling it as combos or offers, avoiding overstocking of non-moving items, by forecasting your inventory. This can be easily found if the operating expense exceeds the flow of cash (sales) into the organization.

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Gofrugal Cash flow accounting software at a glance!

Below is the summary of what makes Gofrugal the best cash flow management software, ensuring smooth business operations.

The flow of cash in and out of each category can be drilled down and narrowed down by group and ledger

Month-wise summaries can be arrived at directly from the analysis of cash flow for a period of time

Comparing the balance sheet and income statement can be seized upon as the cash flow statement collects it all without any intervention

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