QuickBooks Online 2021 that statement of cash flows. Let’s get into it with Intuit QuickBooks Online 2021. Here we are in our QuickBooks Online test drive file, which you can find by searching in your favorite browser for QuickBooks Online test drive or in Craig’s design and landscaping services, we’re going to go down to the reports down below, opening up the other report, that’s going to be a financial statement report, but not really our two favorite ones, the two favorites being the balance sheet and income statement, the other financial report being the statement of cash flows, so we’re going to be opening up the statement of cash flows, I’m going to right click on the statement of cash flows.
00:39
And to duplicate it, I’m actually going to duplicate it two more times, because I want to have the balance sheet and income statement open as well. So I’m going to go back up top and duplicate it again, right clicking and duplicating. And this is because the statement of cash flows is kind of like the third report that we’re going to create meaning if you’re going to build these from scratch, you’re going to typically build a balance sheet and then the income statement or balance sheet and income statement.
01:03
And then the the I’m going to duplicate this again, statement of cash flows, which can be constructed in part from what you have already built in terms of the balance sheet and income statement. So the first tab is where we’re going to go if we want to look at any more data input. second tab is going to be our statement of cash flows. third tab will make our balance sheet fourth tab, then the income statement or profit and loss, let’s open up then the profit and loss over here.
01:28
Going down to the reports on the left hand side, we’re going to be then opened up the P and L, otherwise known as the profit and loss. And let’s change the date range range change up top from a 101 to zero to 1231 to zero, running that report closed in the hamburger up to the right holding down control. Now scrolling up to get to that favorite part where we like it to be at the one to five, that’s like the best place. And then I’m going to go to the second tab, we’re going to then open up what do we need here balance sheet, we need the balance sheet here, we’re going to go down to the reports to open up the balance sheet.
02:04
Then we’re going to go to the balance sheet. And then I’m going to close the hamburger scroll back up top we want a range change range change from a 101 to zero to 1231 to zero, let’s run that report. And then finally, let’s look at our at our statement of cash flows. I’m going to close up the hamburger up top of the statement of cash flows do the range change again, which is going to be from a one a one to zero to 1231 to zero, let’s run that report. So here’s our statement of cash flows. Now, the statement of cash flows in theory, you know, makes a lot of sense. It could be one of the more confusing reports basically in practice, however.
02:44
So the statement of cash flows is basically trying to take our financial statements and put it on a cash flow type of basis. Why do you need to do that isn’t our financial statement already on a cash flow basis? No, typically, it’s on an accrual basis, right. And now we got to change it to kind of a cash flow basis. And the cash flow basis then allows us to have or the statement of cash flows allows us to have kind of the best of both worlds, the accrual basis being better for normal comparison purposes.
03:11
And making it less easy for people to distort or the income statement to be distorted by cash, you know, adjustments, the adjustments of when we’re going to receive or pay cash, and then still have the statement of cash flows to see, obviously, the cash flow because the cash flow is going to be an important activity. The statement of cash flows does have three basic parts, we’re gonna have the operating activities, the investing activities and the financing activities.
03:34
So operating investing financing, typically, the operating activities will be the longest as they are here and can also be the most confusing. When you’re thinking about the operating activities, you can kind of be thinking about the income statement here, the performance report over here, the profit and loss report that is being converted from an accrual basis to a cash basis. That’s what we’re thinking of, in essence, when we’re looking at the first part of the statement of cash flows, that being the operating activities, then the investing activities are going to be those types of transactions that have cash related to them.
04:08
But then typically don’t affect the income statement right there investment type of items, we’re gonna put them in, there’s a separate type of category. Now you could have stock and bond type investments. But one of the most common things that will be here are investments in large assets, such as property, plant and equipment, in this case being the truck. So when you think of the term investment, it can be a little confusing because you can use it in a more restrictive way, thinking about stock and bond type investments and in a more inclusive way as we are here by investing in assets, long term assets in this case, that being property, plant and equipment and those kind of cash flows, inflows and outflows related to those types of investments property plant and equipment will be included here.
04:53
Then we have cash flows related to financing activities. This would include things like notes payable loans that we get we Take a loan out and get money, that would not be something normally hitting the income statement on our normal financial statements. And if it doesn’t hit the income statement on the normal financial statements, then you’re thinking it’s not going to go up here in the operating section, but somewhere else, those would then go down here in the financing activities.
05:17
If we had distributions or something like that, which is probably what this opening balance equity is coming from, then those could be in the financing activities as well, like draws for a sole proprietorship or dividends for a large company. Now, up top, this is where the main activity kind of happens up top. And once again, it’s mirroring what you would think of on the income statement, except on a cash basis. However, it’s a little bit backwards, meaning if you went to the income statement, you’d probably say,
05:46
Okay, if I’m going to put this on a cash basis, what I would like to see what would be most intuitive to me, would be to say, Hey, why don’t I take all these income line items, and instead of recording the income, when you earn it, record it when you receive the cash, record all the transactions on a cash basis method, same with the expenses down below and just show me in essence, an income statement that is on a cash basis method, that would basically be the direct method.
06:11
And we’re not using the direct method, here, we’re using the indirect method, which is the most common method, one because it’s going to be required oftentimes by some regulatory agencies with so you have to do it anyways. So so that’s why they kind of use it and to, because even though that would be more intuitive, the direct method to just take the income statement and make it a cash basis, it doesn’t have a key component that the indirect method has. And that that key component is the fact that we can we can reconcile, meaning,
06:40
I want to, I want to take the net income on the income statement, this number down here, and then basically reconcile to what it would be on a cash basis, I want to see the difference. If I simply reconstruct the income statement, I’m not going to have that kind of reconciliation. But if I start with the net income here, and I make that my top number up top, and then I show the differences, all the changes that are resulting in the accrual method from the cash method. And then at the bottom line, show the show the net cash provided by operating activities.
07:11
Now I have a reconciliation. So for that reason, we typically use the indirect method, which is less than two ative to kind of look at. So bottom line here, this is kind of like net income on a cash basis, but we kind of backed into it instead of just going straight through the income statement and reconstructing it. So how do we do that we take the net income, that’s going to be our top starting point, that’s the bottom line on the income statement, top line of the balance sheet. And then what’s kind of funny here is, as I said, we said this operating section is kind of mirroring the income statement, but most of what is in it is actually coming from a comparison of the balance sheet, prior period and the current period.
07:52
And so and the reason for that is because the change in the balance sheet accounts represent the activity on the income statement. So I won’t go into that in a lot of detail. But we have a course on the statement of cash flows. And if you understand the construction of a statement of cash flows, you’re getting a good understanding of double entry accounting system. But let’s take a look at it just briefly, by going to our balance sheet Report, I’m going to make this a comparative report. Now let’s do a comparative report, by going to the drop down up top, I’m going to compare it to the previous period, I’m going to do this a little bit different, I’m going to hit the drop down up here and go to the last year.
08:27
And that should take me to the to the to the last full year, run that report. And then I’m going to go up top and hit I want the previous year and then the change in the previous year and run that report. So then we have our comparative report. This is typically the kind of worksheet you’ll have if you were to build a report, a statement of cash flows from scratch. And now if I look at the differences here, not the difference in cash, but I’m going to start with accounts receivable.
08:53
Now obviously, there wasn’t much activity in 2019. But I’m looking at the change from the prior period and the current period, which would be that five to eight 152, that five to eight 152 is what’s being constructed here. And the reason is, because if you think about it, you’re going to say, Well, what is the accounts receivable being made up of an invoice, which would increase the accounts receivable, and the other side would be going to the income statement, right. And so the income statement is what we’re backing into.
09:21
And then the thing that would decrease it would be a received payment, where the accounts receivable would go down at that point in time and cash would be affected. So the change then kind of gives us a net impact that we can basically reverse into what would happen on the income statement. And that’ll, that’ll back into our numbers up top to what we need them to be. In other words, you can also think about this, this change. Like if we did if we found the difference on all the balance sheet accounts except for the change that happened on all balance sheet accounts except for cash, then we would have backed into the change in cash.
09:56
And that’s kind of the theory that we would be doing on the indirect method. And again, if you want to learn more about that we have a course on it. But that’s kind of the idea. So that’s why you’ve got all these balance sheet accounts here, which are basically backing into the activity by taking the difference of the change of what is happening on on the balance sheet to back into what happened on the income statement during the last time period, in this case the last year, and that’ll give us our net cash provided by operating activities, which once again, is kind of like, it’s kind of like the the income statement or net income on a cash basis, then we’ve got the investing activities, this is going to be due to the change of what happened in the in the truck account.
10:36
And this would be like sales of trucks or purchase of truck looks like a purchase here. So the truck account went up, the assumption is that we paid cash for it, you could sometimes need adjustments to these accounts, depending on how complex the transaction was. But I won’t go into detail on that now. And the financing activities, like we say would be things like the payables, the loans, and then things like the draws that would come out from the owner or dividends.
11:04
So the notes payable here looks like an increase to cash. So possibly notes payable went up. So if I go to the, to the balance sheet, just to check that out, just to see it, we have in the in the current period 25,000 in the prior period, nothing. So the assumption is that we got we got a loan of 25,000, which would increase cash. That’s why we got an increase in the cash flow, the operating balance act act, equity opening balance, equity is an account that shouldn’t really be there, like we should clear that out. So that’s kind of an issue.
11:35
But you would think that that would be due to draws or due to basically drawls or dividends, however you want to think about it, whether we’re a sole proprietorship or a corporation. So we’ll talk about the opening balance equity more when we create a new company file and why I would suggest clearing out the opening balance equity account because it’s kind of a, an account that you don’t really want on there. It’s used for construction of the of the financials, when you first build them, typically. But in any case, that’s going to give you the net cash provided by financing activities.
12:05
And then if you add up the cash flow between the three activities, investing in financing operating, we add those up, we’re gonna say operating we had the 189 6.0 to minus 213495, plus the 1566 2.5. That gives us our change of the 4063. Now basically, you would typically compare that to beginning to the beginning balance, but because there was no beginning balance here, if I go back on over, we were looking at cash up top is this the balance sheet, I’m looking at the balance sheet, yeah, cash, there was the beginning balance. So the ending balance for cash will be that 2000 oh two, but it looks like there’s also undeposited funds.
12:56
So you would think then that this number would match out to this number here. Let’s see if there’s any other kind of cash accounts, we have undeposited funds, that is this 206 2.52 plus 2201, is going to be the 406 352. So there’s the 406 352. So when so this should tie out to the cash on the balance sheet, the bottom line of the statement of cash flow, statement of cash flows should tie out to the cash on the balance sheet. And you got to be careful when you do so However, because this undeposited funds represents cash that we’re like holding on to either cash in our hands or checks in our hands that we need to deposit.
13:34
Why isn’t it up here in the cash kind of area in the banking area, because these bank accounts need to be set up a little bit differently within QuickBooks because they’re going to be linked to the bank. So they need their own account type. And the way the undeposited funds functions means that it doesn’t need to be up there, and therefore it’s down here in other assets. But if we were to group them together for normal financial accounting purposes, we would put them all together under a category of typically just simply cash.
14:02
So that’s going to be our our statement of cash flows. Let’s go ahead and print this thing out and save it as we’ve done in the past with our other reports. So I’m going to hit the drop down here, we’re going to we’re going to export it to a PDF file. And then we’re gonna save it as a PDF, it opens up down there in the left hand side in Chrome gonna minimize so we can do the old drag and drop. And then I’m going to take it, I’m gonna drag it over here, drag it, it didn’t want to go but I dragged it anyways.
14:32
And so we’re going to drag it over and then you dropped it and then I’m going to right click Rename it. This is going to be two zero 12 three, one statement of cash flows. And then I’m going to open up my other excel sheet and we want to add another worksheet right here for this one. So I’m going to add another worksheet so we can put this one here, and I’m going to maximize the screen. Close this item out We’re going to export this event to excel as well, we want to do that as well, Excel. Gonna do that as well, we’re gonna open up the Excel document or worksheet or workbook, which will have a worksheet in it. I want to edit it.
15:15
So I’m going to enable the editing so that I can do so I’m going to copy the entire worksheet by hitting the triangle up top copying the full thing, total thing copied, right click and copy, then I’m going to minimize this one, and we’re going to paste it here, it’s got to be on sale a one, or selecting the whole worksheet, and then I’m going to say Ctrl V, this time, pasting it right there, then I’m going to go down, double click on our sheet tab, I’m just going to call this statement, cash flow.
15:45
Like that, I’m going to make sure it fits on one page by going to the view screen, it doesn’t fit on one page. So I’m going to need some adjustment, good thing I checked, I’m going to go back to the normal, I thought it would fit on one page. And then I’m going to just grab this column right here, and I’m gonna drag it to the left and see if it fits there it is not quite Not quite, I thought that would do it. But no, I’m gonna make this one smaller too. That does it.
16:10
So I didn’t make some change, I should have changed the negative numbers to be bracketed, I’m not going to go back and do that now. But I should have made the bracketed numbers, you know, bracketed and read and all that kind of stuff. But I didn’t do it. But I’m not going to do it now. So in any case, I’m going to go to File tab up top, we’re going to print this thing, we’re gonna we’re gonna use the cutepdf printer, I want to print the entire the entire workbook, print the entire workbook, which is now 14 pages. And let’s scroll through it observing the pages.
16:44
Make sure I didn’t make a mistake. I never do. But you know, I’d like to check anyways. So just in case other people, good practice for other people know. So I’m going to print it now let’s go ahead and print it. And then it’s going to ask me where I want to put it. And I’m going to I’m going to overwrite this one, we’re going to overwrite that I’m going to save it. And then I’m going to minimize this. So now we’ve got it linked into our reports over here. And if I open up this PDF file, we should have all of these on our our one PDF file again.
17:23
So if I scroll down, we’ve got all these reports together, which should either overwhelm and or impress, possibly both. So we’ll scroll down. There’s a balance sheet, income statement reports, income statement reports. And then we have the statement of cash flows down here somewhere not quite yet. One more, one more round. There it is statement of cash flows, which isn’t formatted the perfect way and it has a footer on it, which I don’t like but we’re not going to change it now.