Cash Flow Statements and Accounting Applications

Cash flow statements are one of the four financial statements prepared by the management at the end of the financial year in accordance with the accounting standards. It is concerned with the inflow and outflow of cash in a given time period from operating activities, investing activities and financing activities (not necessarily in the mentioned order). That means it is based on a cash basis of accounting as opposed to accrual basis used in the balance sheet and profit and loss statement. It shows a picture of the ability of the company to pay expenses including payroll and interests. A strong statement is required by investors if they are to make a decision when it comes to investing in business. In addition, for the business to invest for expansion, it has to study the statement.

Of course, the management needs to know the result of operating the business and whether the current projects are feasible or not. In addition, being in profit may not lead to sustainability of the business if its incomings are not able to cover immediate expenses or meet immediate current liabilities. It is of no use if the business has not enough cash to pay its employees but its accrued income – and thereby its profit is high.

As per Generally Accepted Principles of Accounting (GAAP), cash flow statements can be prepared in two ways: direct and indirect. The latter mode is deemed appropriate because it shows the relation between net income and cash from operations. Moreover, it starts with accrual method’s net profit (or loss) and proceeds further. The former mode, on the other hand, presents a summary the cash flows from various activities only.

Despite the name, non-cash items including leasing to purchase an asset, conversion of debt to equity, exchange of non-cash asset, liabilities for similar non-cash assets, or liabilities, and issuance of share in exchange for assets should also be recorded. This can be done as a note or within the statement itself, as the management deems suitable. Also disclosed in the notes are any significant noncash transactions like depreciation, amortization or impairment loss.

Accounting applications help in making accurate information to be presented in cash flow statements. Direct method or indirect method, applications are capable of preparing precisely – after all, it comes from the journal entry that is made in the initial stages of accounting, and the app makes sure of it – what the management wants. The management can see the flow of cash at any period of time in the fiscal year. In addition, because its data is linked with the “cash” part in the balance sheet, having accurate figure helps a lot. Moreover, there is also the feature of security, an authenticity that comes with the apps.

Personal Finance and Handling Money – An Owner/Operator Mindset

Many people believe money is the embodiment of material wealth and allegedly personal freedom. Regardless of our sophistication and education, we are typically swept up with this misrepresentation. We seek financial well-being anywhere we can find it. Those of us without real cash reserves or large disposable incomes mistakenly replace what we lack in funds with expensive lines of credit. We leverage what we have in order to acquire what we seek to possess.

Unfortunately many of us confuse what we want with what we believe we need. We accumulate indiscriminately. We oftentimes compound matters by purchasing material goods that have little or no long term value with leveraged cash obligations that increase over time. Herein is the beginning path of many a person to their eventual financial doom. Unfortunately in order to accumulate wealth in our society, we need capital. We need to grow our money through investments of appreciating value; we need discipline, luck, time, and a particular mindset.

Our personal response to money determines how successfully we can use it to the best advantage. Notice how the inherent concept in this last sentence was to USE money toward some further end. Money does not, in itself, give us wealth and freedom; it is actually only a vehicle to achieve it. We need to understand the emotions that affect our decisions about how we use money in order to improve ourselves and gain a greater prosperity and well-being. Few people would argue that if we ran our lives like a home-based business, our emotional approach as a successfully owner/operator to money would probably have a more utilitarian perspective.

The secret here is that money looks different to a business person; “capital assets” are used to finance business goals. Money is a “means” to some “end”. It is not typically perceived as personal reward. The successful sole proprietor of a home-based business tends to mentally separate what is in their “pocket” from what is in the “business operating account”. Similarly, lines of credit leverage the business’ capital resources to increase future financial returns. Responsible management means anticipating investment returns that will exceed the total costs of the credit used. If you run your life like a successful home-based business, you don’t charge your personal 10-day vacation on a credit card! Think of yourself not as consumer but potentially a producer of value. You take a 10-day business trip and, while there, develop new business contacts. Cash expenditures serve some financial purpose and are routinely goal-directed; money is spent to build value rather than just spend cash. This change in mindset especially in these hard times is a critical secret if one wants to gain financial success and personal freedom.

Finances and the Business Startup – Part I

A large number of small businesses fail each year. There are a number of reasons for these failures, but one of the main reasons is insufficient funds. Too many entrepreneurs try to start and operate a business without sufficient capital (money). To avoid this pitfall, first review your situation by analyzing these three questions:

How much money do you have?
How much money will you need to start your business?
How much money will you need to stay in business?

Use the following categories to compile the needed data to complete a personal financial statement to answer the first question:

Personal Financial Statement


Cash on hand:
Savings account:
Stocks, bonds, securities:
Accounts/notes receivable:
Real estate:
Life insurance (cash value):
Automobile/other vehicles:
Other liquid assets:


Accounts payable:
Notes payable:
Contracts payable:
Real estate loans:
Other liabilities:


Completing this personal financial sheet will set you on the right road to business startup success.

While reading this article, you will develop a bank of resources and instill habits that reinforce what is needed to reach your business goals, develop a sustainable business, and achieve your ultimate dream.

In the article, you are further honing your business ideas and determine what finances you have and will need. You will develop your entrepreneurial goal into one that is both personally exciting and one that provides its own sustainable source of motivation. You will also mold your ideas into your personal values in order to make it part of who you are. This one strategy will assist you in developing the strong financial knowledge The High Performance Entrepreneur needs to develop sustainability.

In other strategies in my the remaining The High Performance Entrepreneur strategies, you will learn how to develop the daily routines needed to keep you on your path. You will create action plans to use as visual displays to keep you on track. Through self-assessments, you will orient yourself around daily, weekly, and annual reporting schedules so you will know how close you are to your goals.

Look for other articles in the series by me.