QuickBooks Online statement of cash flows, get ready to start moving on up with QuickBooks Online. We’re going to be using the free QuickBooks Online test drives searching in our online search engine
for QuickBooks Online test drive selecting the option that has intuit.com. And that URL Intuit being the owner of QuickBooks, picking the United States version of the software and verifying that we’re not a robot.
Zooming in a bit by holding down control up on the scroll wheel currently at one to 5% on the zoom in noting that with the cog drop down, we’re currently in the accountant view as opposed to the Business View, we’ll try to toggle back and forth between the two views. So you can get a look at both of them.
Were think it’d be right clicking on the tab up top in order to duplicate it to put reports in as we do every time, right click in the duplicate a tab to duplicate it again, back to the tab to the middle, going down to the reports on the left hand side, picking the balance sheet report,
as that thinking tab to the right reports on the left, this time the profit and loss the income statement report, we’re going to be closing the hamburger up top otherwise known as the ham
Bogey, change the range up top from a 101 to two to 1231 to two tab, run it and then back to the tab to the left, and closed a bogey scrolling up range into the change in a one a one to two Tap 1231 to two tab and run it to refresh it.
These are the major financial statement reports. That’s the process that we do every time. Now we’re going to be opening up other reports starting with the other financial statement report of the statement of cash flows.
And most of these other reports we want to think of as giving more information about one or multiple line items on the balance sheet and the income statement.
Now the Statement of Cash Flows after having said that is a little bit different, because it’s another basic kind of financial statement report. But it’s still a report that you kind of think of as being constructed after having constructed the balance sheet and the income statement. So let’s open it up.
And then I’ll continue discussing it, we’re going to be right clicking on the tab to the right, duplicating that tab, so that we can then go down to the reports again.
And then I’m just going to type in up top to find it. That’s how I usually find the statement of cash flows. Statement of Cash Flows. There it is, that’s the one we want. Let’s change the range up top, we’re going from a 10122 to 1230 122 and run it.
There we have it the statement of cash flows down when you’re thinking about the financial reports, oftentimes, we’ll list the statement of cash flows as one of the major financial statement reports.
So you got the balance sheet, you got the income statement, you’ve got the statement of cash flows. The reason we don’t open it up every time we do the data input as we do with the balance sheet, and the income statement is because you can kind of think of the statement of cash flows.
If you were to construct this by hand as being constructed after you build the balance sheet and the income statement. So in other words, if I go back to the balance sheet, when we first set up our system, we’re going to lay down the Chart of Accounts,
then we’re going to hit the plus button and we’re going to enter these journal entries in the format of forms that then create the journal entries, these will have an impact on at least two accounts on the balance sheet, or the end the income statement.
And that is going to be keeping us in balance with the double entry accounting system. And it’s nice to then go to the balance sheet and income statement drill down on the accounts affected to get back to the source document.
So I would think of these as our major two financial statement reports being constructed directly from the data input, then we’re going to use this information or the system uses this information to create the
statement of cash flows, which shows activity what happens over time, in a similar fashion as the income statement you’ll note on a cash flow type of basis.
Now, note that you might be thinking, well, what if I have my books, my balance sheet and my income statement on a cash flow basis? Is the Statement of Cash Flows redundant? Not necessarily.
Because even if you’re on a cash flow basis, then like your small business, let’s say that’s on a cash flow basis and you’re doing your books primarily
to get your to get your tax returns done at the end of the year or something like that. There’s still some components that are going to be accrual based. So if you have for example, fixed assets, the tax code, even though it might be on a cash based system,
or you might be recording on a caste based system will force you to put assets on the books and then depreciate them. That’s an accrual type of thing. If you deal with accounts receivable, then you’re going to have that’s an accrual account in and of itself, you’re on an accrual system.
And so there’s going to be differences between cash flow and, and a accrual basis and then saying what the accounts payable. And then if you’ve got any kind of pre payments, then also those are going to be accrual kind of items.
The reason the accrual system is is required, oftentimes, if you’re publicly traded, for example, and is considered the go to, for reporting purposes and projection purposes is if we go on the income statement,
it’s often easiest to see that if you were to compare multiple periods, if I hit the drop down here, and say we want to compare, like quarters, let’s say, if I was to run multiple quarters here and do a comparison of these last two quarters, let’s do it this way. Let’s go, let’s go back to the totals. Let’s run it,
I’m going to go up here, and let’s just do, let’s do one month, let’s go 1201 to two to 1231. Two to run it, and then I’m do a comparison to the previous month, and do $1 change on it.
So I’m going to run it. So if I was trying to think how did I do on December versus November, then I would have distorted numbers, if I’d recorded, say a purchase of a building in December for $100,000, then there would be a complete distortion of my comparison.
And it’s not really fair to do that from one perspective, because you’d be saying, hey, look, even though I bought the building in December, let’s say, or let’s say I bought it in November, even if I bought it in November, I’m still going to be using it in December.
And that’s the idea of an accrual. So we’re gonna say, to be fair to the two months, so that I have a comparable amount of data, if I buy something
that’s going to have an impact on multiple periods into the future, I want to put it on the books as an asset, and then, you know, depreciate it record the expense when I actually consume it. So I have more comparable data.
Now, in principle, that’s a great concept and allows us to have comparisons more accurately. But we also want to have a cash flow statement.
So now I’ve lost my income statements, not on a cash flow basis. Well, now I can add on and have the best of both worlds, in essence, a statement of cash flows. But the statement of cash flows is a little bit tricky, because now I’m gonna have to kind of take what I did on an accrual basis, and basically adjust it to a cash flow basis. So that’s kind of the general idea.
So let’s look at the categories of the statement of cash flows here, I’m going to collapse everything inside. As we’ve done with our other reports, just to get a feel for what we’re doing here, we can see there’s three main categories, operating investing,
financing, then you got the net net cash increase for the period, and the cash at the end of the period, that 4063 52 should tie out to what’s on the balance sheet at the end of the period.
So if I go back on over here, you got to pull up the trusty calculator, because if there’s something in undeposited funds, then you got to pick that up. So here we’ve got cash of 201. Plus, you’ve got the undeposited funds here plus the 206 2.52.
There’s the 4063 52, which ties out to the statement of cash flows. So in that sense, you can say, okay, the statement of cash flow kind of ties into the cash has given you more detail on the cash balance.
But that’s really the way to simplify a thought process because it’s kind of like a bank reconciliation, in that we’re not just looking at the cash balance. By checking the transactions on a cash flow basis, we’re basically looking at the whole, you know, accounting system on a cash flow basis type of system.
So you can kind of think of it as if you went to the balance sheet over here. And we think of the income statement as basically a breakout of the equity section, which is assets minus liabilities.
Now, we’re kind of reversing everything and work kind of breaking out in accordance with the cash flow accounts to see the detail how we got to the current position, and cash flow,
beginning balance, cash flow, what happened during the period made mainly Income Statement activities, but on a cash basis to get us to the Indian point that we are at.
Okay, so back to the statement of cash flow. So we’ve got these three major categories of the statement of cash flows, the operating activities is by far typically the largest category that we have.
And you can think of it kind of like the income statement or operating activities type of thing on a cash flow basis. Although most of the time we use what we call an indirect method,
reconciling net income on the income side statement to net income on the statement of cash flows or operating activities, then we have financing activities, which typically deals with the purchase of fixed assets.
Because that’s, that’s I’m sorry, investing activities, which typically has to to with the purchase of fixed assets. And then we’ve got the financing activities,
which typically has to do how we’re going to finance the business, which might include the owner putting money into the business, or taking out loans, paying off loans paying dividends, or owner’s equity.
So these are the cash flow areas, if I opened them up, like I say, operating is typically the largest cash flow item. Notice, if you were to think about it intuitively, you would probably say, okay, if I’m going to make a statement of cash flows,
and the reason for this is because the income statement is on an accrual basis, so that I have this nice comparison on the income statement, then I’m just going to take each line item on the income statement, and record it on a cash based system.
And that will convert it to a cash based system, that would be the simplest thing to think about, or the easiest way to visualize what you would do. In other words, instead of recording revenue, when, for example, I enter an invoice because I didn’t get cash on an invoice, I wait until I receive the payment.
And instead of entering an expense, when I enter a bill, I wait until the bill is paid. And then I just run my income statement on that basis, kind of eliminating the cash items.
Now you could do that. And that would be an operating activity in essence statement, but it would be under a direct method.
And most Statement of Cash Flows are actually going to use what’s called the indirect method, even though the direct method is more intuitive, and that we’re going to start with the end balance, net income. So net income, if I go back on over here, and I say this goes from Oh, 101 to two and run it.
Net income down below is the 164 to 46. So there is that and then we’re going to have all of our adjustments, reversing out the accrual components to get to an essence, the net income on a cash flow basis or net cash is prop net cash provided by operating activities.
So so this kind of confuses people when they first look at it, because like I say, we’re, we’re backing into it, instead of starting from the top down going from income minus expenses on a direct method. Why would we do that? Because it’s kind of possible, you would think QuickBooks
could kind of put together the operating section on a direct method. However, most of the time for reporting purposes for like generally accepted accounting principles, they actually like the indirect method better, because it gives you a reconciliation.
So if I was just to recreate the income statement, top down, I don’t get this nice reconciliation of net income that ties out there’s the differences that get me to the cash flow provided by operating activities.
Therefore, many times regulations that allow that direct method also still want the indirect method. And therefore the default is just to use the indirect method where you have this nice reconciliation.
Now, the funny thing about the indirect method is that you kind of back into this area, because notice that what we’re getting to here too, is net income, in essence, on a cash flow statement on a cash flow basis.
So you would think that you would just be looking at the income statement to do that. But what we’re ending up doing to back into that is we’re going to the balance sheet, and we’re looking at the difference between the prior period and the current period.
So I can take another difference one here, and say, let’s make this compared to the previous period and dollar change. Right, we’re looking at we’re looking at the difference, because if if this is where I stand, let’s look at the accounts receivable.
For example, if this is where I stand as of right now, and I subtract it out of what happened in the prior period, which was zero in this case, this is this is the change between those two.
And because this is an accrual account, doesn’t have cash related to it, I can kind of back into what what what was the non cash transaction impact on the income statement, because the other side of accounts receivable when we record an invoice is revenue. So we’re going to kind of back into the reversal of the non cash items
by looking at the differences in all of the balance sheet accounts. And that that becomes quite complex to actually think about so we actually have a course on building the statement of cash flows and if you can construct a statement of cash flows,
then that actually gives you a much better understanding of the accrual concepts in general, so highly recommend doing that it’s a good practice.
Notice that all of these accounts the other side of them have an impact on the income statement. So accounts receivable invoice form typically impacts it.
The other side of it is revenue inventory. Typically when you sell inventory, the other side is cost of goods sold on the income statement, accounts payable.
Typically the other side of Accounts Payable balance sheet account is an income statement account of an expense, at least you know, MasterCard, is going to be a credit card, we’re usually buying an expense,
Amazon revenue pay, this is another payable. So other side often expense Board of Equalization other sides of expense. And notice they have the loan payable up here, which is kind of interesting,
because you would think that possibly the loan payable would be under the financing activities, right? Because a loan would typically be a financing type of activity.
So also just realized that although QuickBooks gets to something that is in balance here ties out to the to the to the balance sheet, it may not always be perfect, because if you have complex transactions, such as you’re purchasing something
like property, plant and equipment on account, you’re financing it, then QuickBooks may not be able to categorize properly, what’s going on. And so it gives you a pretty good statement of cash flows,
but it might not be perfect. And you might have to, if you were to do external reporting, do some adjustments to it. But in any case, then you’ve got the in so
So then you’ve got the investing activities. So normally, these are going to be like things that have to do with the the purchase of equipment, or the sale of equipment, property, plant and equipment up balance sheet
account activity, and you can kind of tell it would be not under the operating, which is the default that most stuff goes into notice we’re now going down to a balance sheet account again.
But the key here is the others, we’re not putting it into the operating activity. Because the the other side isn’t an income statement account, necessarily. When we buy equipment, we pay cash. And then the other side goes to if we paid cash, if we financed it,
it gets more complicated. But if we paid cash than the other side goes to a balance sheet account. That’s why it’s not up here in the operating activities. Why is it called Investing, because you would think it would just be stocks and bonds maybe.
But investing Here’s a more broader sense of investing, we are investing in the fixed assets, because we’re putting our capital into the fixed assets in order to generate revenue in the future. That’s so that’s in that sense, it’s in the investing activities.
And then we’ve got the financing activities, which once again, you would kind of think the loan payable would possibly be in this is the the activities that also don’t typically have the other side has an impact on the income statement, therefore not in the operating activities.
So you put them down here, in the financing activities, which would typically be things like taking out loans, you take out a loan to finance the purchase of the assets. That’s and then you also could have financing activities for paying off the loans.
And then you could have financing activities for the owner putting money in if it was a sole proprietorship, an owner investment. And from the owner taking the money out, if it was a sole proprietorship a draw, if it was a corporation,
when the when they put money in, there would be the issuance of capital stock, and when they take the money out, it would be a dividend. So that would be the financing activities. And then if we take those three changes, we’ve got the 189 6.02 minus the 13495 plus 21566 2.5.
That gives us our change, here, a 4063 Our change in cash. And if I go back to the balance sheet, there’s there’s nothing in the prior period. So the change in cash is just the whatever the change right here, which would be the 2201 Plus, and then we go to undeposited funds plus the 2658 points.
No, that’s not the undeposited funds, hold on a sec, back back back. 206 2.52. That’s the 4063. So there’s, you know, the change, and obviously, the there’s the ending balance because there wasn’t anything in the prior period.
And that should tie out, of course to the Indian balance and that’s how it kind of neatly fits in to tie in into the balance sheet. So that’s the general idea.
Also, just note from a technical standpoint here, oftentimes there’s kind of an issue with these with these names like so it says total adjustments are right here it says net cash provided by the And you could say,
well, what if this was a negative number, notice down here it says net cash provided by that a little bit wrong. Because notice it wasn’t provided by it went down.
So it would have to be used in. That’s one of the issues with a statement of cash flow, you can use a generic term here, like net cash change, you know, by investing activities.
But usually they lead they like to use the term provided by or used in or something like that, which means you got to actually change the words. And that’s something that QuickBooks doesn’t always do here, if you want to get, you know, picky on it. And it’s known as Cat.
So you got to provide it by kind of terminology here. And then you got the net cash increase for the period. Again, what if it went down? Will QuickBooks change this to a decrease? I don’t think so. Right? I think it’s going to always be like that way. So you got to kind of be a little careful about the terminology might not be a big deal to you.
But just to just to point out, if you were to get a review by someone in an accounting office, they, they like to, you know, that would be something that they should point out that they’d like to point it out, but they should point it out, because it’s, it’s a little bit wonky there.
And then it’s kind of interesting to note that this operating activity, you would think that you can go to the income statement, and just hit your little button up here to change it to a cash to based system. And you should basically tie out to to an income statement that is on, you know,
basically at the direct method of the statement of cash flows, it’s not perfect. So if I go over here and say run it, and I’d check it out down here, then I got a negative 1904 12. And over here, I’ve got 1869 6.02. So there’s a little bit of a difference between that but you know,
you can you that’s the general idea this operating activity is, in essence, kind of given you a cash flow basis, as opposed to an accrual basis of kind of like the income statement, but it’s given you a reconciliation format, you can take your income statement.
And remember, you don’t want to use this toggle button to kind of feel like you’re running a cash based system, because that will be dependent on whether you’re using accrual forms, meaning are you using an invoice or just recording revenue with a deposit of bank deposit form? Or a sales receipt?
Are you using a bill form or just recording expenses with the expenses. But if you use this properly, and you then and you’re then thinking,
Okay, I know I’m on an accrual system or whatever, I’ve entered my data. Now I’m just I want to see the difference. If I was to switch over to a cash based system, which would in essence,
be kind of like the first section of the statement of cash flows, but on a direct method, and that can give you an interesting, you know, look at your, at your performance,
basically, on a cash flow system, although it’s not perfectly tied out to what we have over here on the operating activities, possibly because of some of the play between what’s on what’s on the books up top versus the investing and financing activities. But that’s that’ll give you a general idea.
So, in summary, just realize that your major financial statements are the balance sheet and the income statement. That’s how I would think of it. And you’re inevitably going to have someone ask you, but what about the statement of cash flows? It’s also a major financial statement.
And you’re gonna say, Yes, it is a major financial statement. But it’s actually kind of constructed from oftentimes the balance sheet and the income statement.
Therefore, I’m always going to look at the balance sheet and the income statement first, when I’m building my data input to check the impact on the balance sheet in the income statement.
And then if that’s correct, then I should be able to construct in essence, my statement of cash flow or QuickBooks have it constructed for me from it. And also just remember, the Statement of Cash Flows constructed from QuickBooks may not be perfect, right?
It reconciles at times out. But if you have complex financing transactions, and investing transactions, and buying equipment and disposing of equipment, oftentimes depreciation is kind of an issue when you buy and sell equipment.
You might have to get a little bit more detailed to really hone down and get a proper statement of cash flows, but QuickBooks gives you a good, a good baseline