QuickBooks Pro Plus desktop 2022 Statement of Cash Flows Get ready because we bookkeeping pros are moving up the hilltop with QuickBooks Pro Plus desktop 2022. Here we are in our free QuickBooks sample file sample Rockcastle construction going through the setup process with a view drop down the open windows list left hand side company dropped down home page in the middle, maximizing that home page of this time opening up the report being the statement of cash flows.
00:29
That is our focus that can be found by going to the reports drop down, we’re going to go on down to the company and financials. This is going to be the third major financial statement report however, not quite as major or not quite as important when you’re going back and forth from the data input to the creation of the financial statements as the other two balance sheet and income statement otherwise known as the profit and loss, which we will explain in more detail shortly.
00:57
That’s why it’s gonna be found way at the bottom down here. In the statement of cash flows. We’re looking at that statement of cash flows. This is another timing report noted seen it has two dates up top, we’re gonna make this for Oh 101232. Let’s make it to 1230 123 for the year of 2023. Let’s maximize then to font size number 14 Going to the customized reports. Taking that font up to 14 for fonts sake, yes. And then we’re gonna say okay, let’s then open up our balance sheets and income statement reports. So we could do some comparing and some contrasting so
01:38
I’m going to go to the reports drop down company and financial take a look at that balance sheet standard report, changing the dates there as well. I’m going to go to the customized reports to do so to give us the range from Oh 10123 to 1230 123. Also go into the fonts and numbers make the font 14 for font sake, so we can see it and say yes, and Okay. Same thing with the income statement reports drop down company and financial profit and loss P and L otherwise known as the income statement. Oh 10123 to 1230 123. Customize the report looking at those fonts and numbers.
02:22
Where do we want it? We want it at 14 for font sake. Okay, let’s do it. Okay, there we have it. Let’s go on back to the to the statement of cash flows that be our point of focus at this point in time. Gonna, we’ll keep that open on the left hand side. So the statement of cash flows. This is the third report, that is a major financial statement report. However, not as important as the balance sheet and income statement when you’re thinking about the creation of the reports due to the fact that it’s basically going to be built on or based off of the data that has been created to create the financial statements of the balance sheet and income statement.
03:02
So if you think about the ordering in which you would typically put together or create the financial statements from scratch, you would use the financial transactions to create, in essence, a trial balance and then you would create the income statement and balance sheet. And then you would use that to create the statement of cash flows. So in that way, you can think of it kind of as a supplemental report in that it’s going to be dependent on first the creation of the financial statements to create it. And then of course, it’s going to be using the items from the income statement, which includes net income, bottom line of the income statement.
03:37
So the 213 560 69 matching, if we go to the income statement, bottom line, they 213 560 69. And the bottom line of the statement of cash flows will tie out to the balance sheet scrolling down, ending balance after 5744 29. That’s the ending balance on the cash on the balance sheet, go into the balance sheet report. We’re looking at cash here, it’s a little bit different. Why? Because we have to add the undeposited funds 5460 4.29. And remember, they put the undeposited funds kind of funnily weirdly, down here, because it’s an other current assets, but still cash plus the 2440. And that then equals to 5457 4429, which should then match over here to 5744 29.
04:32
So there is that now functionality, what is the statement of cash flows, it’s trying to show just that the flows that have taken place over a certain period of time, meaning it’s an activity type of statement, in that in that way. It’s similar to the income statement, the income statement trying to measure performance over time. Whereas but the income statement does that on an accrual basis if we’re using an accrual basis and that accrual basis being used will be dependent upon the type of industry that we’re in, as we’ve talked about in prior presentations, the statement of cash flows, then it’s going to try to measure the activity that has happened on a cash basis looking at the cash flows.
05:14
So you can think about it, in essence of taking the activity statement of the income statement that we did on an accrual basis. To the extent we needed to depending on the type of industry we’re in, and the flow that we use on the homepage, and reworking it basically to have a cash flow basis. So that we can basically get the best of both worlds meaning the accrual basis of the income statement, which is useful when we make comparisons from period to period. In other words, if I go to the income statement, it’s quite nice that I use an accrual basis for something, let’s say I looked at the insurance expense here, for example, and I paid for a year’s worth of insurance expense in January.
05:53
Then if I compared January to February, and I expensed it all in one month, that comparison between January and February would not be quite right with regards to that expense. Because I would have a huge expense in January compared to February, we can use an accrual system in order to put the insurance on the books as an asset and then expensive as we use it.
06:14
Another example might be the depreciation and the equipment, which is a more extreme example, if we had a building that we paid cash for, for $100,000 in one year, and we just expensed it all in one year, that then would cause a problem, if we compared that year to the next year in terms of our performance from a work standpoint, due to the fact that that cash outflow will have a positive impact on many years going forward. So we use an accrual component depreciated over the useful life. So that’s useful for the comparison purposes, but it also throws off our cash flow.
06:49
So we’d like to have the income statement on an accrual basis when we need to, to the extent we need to, and then also have kind of a cash basis by taking it and backing into in essence, a cash basis method so that we can see the cash flow as well, because obviously cash flow is going to be important just for the health of our cash flow as well. So that’s going to be the general idea.
07:11
Now you could think of this, if you if you think about that kind of format, you could say okay, well, if I have my income statement over here, and it’s on an accrual statement, and it basically represents the activity that has happened on more of an accrual basis, when we need to go to an accrual basis, then why don’t I just reconstruct my income statement, on a cash basis, reworking each one of these items on a cash basis, you can kind of think of that as what is happening.
07:36
When you click this little cache button. On the right hand side, it’ll try to convert your income statement for the most part two a cash basis. And the first part of the income of the statement of cash flows, if they did it correctly. 1616 1979 should kind of match the statement of cash flows for this first part, it doesn’t quite exactly because that kind of change on the income statement with that button is not quite perfect. But you get the idea that that’s kind of what they’re what you’re trying to do this, this little exchange doesn’t quite work perfectly, because inventory in one in one case is one of the things they kind of throw it off, as we talked about in prior presentations. But you know, that’s kind of the idea.
08:18
So you might say, Well, why doesn’t is that what the statement of cash flow is, then is it just simply an income statement that is reworked from top to bottom income minus expenses, but instead of on a cash basis, I set up on an accrual basis on a cash basis. That’s not exactly right. But that’s similar to basically what the first half of the Statement of Cash Flows would be. In other words, if I go to the statement of cash flows, this first half of the statement of cash flows is basically an idea that we’re going to get down to the net income on a cash basis rather than on an accrual basis.
08:53
And the other two components, invested activities, financing activities, or other cash related activities, not on the income statement. However, this first half, we’re not going to do it on in the same format, as we did before, meaning we could do it with two methods, a direct method and an indirect method, the direct method would do just that it would take the income statement, start at revenue minus expenses, convert each line item from an accrual component to a cash component, resulting in essence, the equivalent of net income on a cash basis.
09:29
Now, we don’t usually use or we’re not going to use that method in QuickBooks, in part, because most of the times if you look at regulations, they require what’s called the indirect method. In any case, so even if you do the direct method, you also have to do the indirect method. And the indirect method in this is why they have the regulation in part not only converts to a cash basis, but it also gives you what kind of reconciliation meaning instead of reconstructing the income state statement from top to bottom, we’re going to start at the bottom of the income statement, which is net income, then we’re going to back out those things that are accrual related components to get to basically the net income that is on a cash basis, which is the bottom of the first half,
10:16
or the first part of the statement of cash flows, which is the main part of the statement of cash flows. That not only gives us the idea that we’ve now reworked the cash flow on a cash basis instead of an accrual basis or the activity on a cash flow instead of an accrual basis. But it also gives us a reconciliation directly going from the results on an accrual basis backing in to the cash basis. So that’s basically the idea of it, the cash flow statement can actually be quite complex to build or think about how to kind of put it together there’s get a little tricky, we have a whole course on the cash flow basis. If you want to get a better idea of what exactly it is,
10:53
if you can construct a statement of cash flows from the balance sheet and income statement, that’s really means you’re getting a much better idea of what the accrual components or concepts are, we won’t go into that in detail here. But just just keep that in mind. Okay, so let’s do our same, we’re going to minimize some of these items here. And we’ll minimize these items to see just the components of the statement of cash flows, as we have seen before, with a balance sheet and the income statement. So the first component, we have basically three, three parts of the statement of cash flows, the operating activities, the investing activities, and financing activities.
11:35
And that’s going to be our our three components of where we’re going to be grouping the cash flows, then we’re gonna have the bottom line of a statement of cash flows, which in essence will be tied out to the balance sheet, which will be the ending cash operating activities have to do with in essence, like we were talking about converting basically the income statement from an accrual basis to a cash basis, that’s going to be majority, typically, by far of the statement of cash flows.
12:04
The investing activities are cash flow related items that don’t have an impact on the income statement, things like the purchase of equipment, for example, meaning we’re invested in the equipment, when we purchased the equipment, we didn’t expense it, it didn’t hit the income statement, we paid cash, for example, the other side, go into a balance sheet account, that being furniture and fixture or equipment or something like that, a fixed asset account. And then we have the financing activities, which represent things that are cash related for financing things like we have the loans that would be going into here, so we got a loan, we increase the cash, but it was not hitting the income statement, because it’s hitting Accounts Payable a balance sheet account,
12:47
because we have to pay it back or financing from the owner, the owner puts money into the company or takes money out in the form of an investment or a draw. So that’s those are the general three parts. The statement of cash flows is basically constructed, you can think about it as the basic building blocks taking the difference between the balance sheet and the prior period and the balance sheet and the current period. And the difference between those two balance sheet accounts represents the change that is happening over time. And it’s using that to construct the statement of cash flows, which we won’t go into detail here.
13:21
But if you want to look into that more in more detail, we have a course on the statement of cash flows, it really is a way to understand all of the accrual accounting better. But the operating activities generally we’ll start off with using an indirect method using net income, this is the net income that’s from the income statement. And then we take the adjustments to reconcile to net income. And those are going to be basically the differences in all of the balance sheet accounts.
13:50
So for example, this accounts receivable account is going to be like the change in the balance sheet accounts. If I went to the balance sheet account here, went into the accounts receivable, we can see that it started if I pull out the trusty calculator, the trusty calculator, we’re gonna say it started at the 21 to 49.39. And then it ended it ended way down here. Minus we’re at the 10310378 2.93 difference 82533 Difference, let’s go back to the statement of cash flows.
14:26
There’s 282533. That difference in the balance sheet accounts represents a difference of change that’s going to be happening or reflected on the income statement, given the fact that accounts receivable is tied to the to the revenue account on the income statement, in essence, so it’s kind of backing into the activity on the income statement and then looking at the accrual component using in this case the accrual account of accounts receivable, which is an accrual account, you wouldn’t have accounts receivable. In other words, if you weren’t on an accrual basis, you do in essence the same thing for all of the balance Sheet accounts here backing into basically the accrual component, which, like I say, is a long kind of process typically the largest part of the statement of cash flows.
15:08
And that basically backing all those out gets you to the net cash provided by operating activities, which is in essence, the equivalent of net income, in essence, but now on a cash basis, reconciling net income on an accrual basis, which is the amount on the income statement to the the cash basis down here, net income called net cash provided by operating activities, then the investing activities usually a lot smaller, it’s pulling in the information from the furniture and equipment. So in this case, we’re saying that the 11,500 was an outflow of cash for the purchase of furniture and fixtures.
15:47
Now, the Statement of Cash Flows could do a pretty good job of reconciling this in QuickBooks. But if you get some more complex transactions, QuickBooks could have a problem with the statement of cash flows. And to get it perfect, you might have to actually make some adjustments to it. So so just note that if one of those types of things is when you have a complex purchase of equipment, or you dispose of equipment, for example, so if you purchase the equipment, and you pay part of it in cash, and you pay part of it with a bill, then it’s a little bit more difficult for QuickBooks to assign that difference that change in the equipment account to the furniture and equipment when you sell furniture and equipment,
16:27
then you also have the accumulated depreciation related to it. So when you do that disposal, there’s a lot of accounts that are that are included. Those are the types of things that become a little bit more complex for our QuickBooks system to kind of kind of do with just the changes in the balance sheet accounts. So for example, if I go into here and look at the detail, we have one, which is with a credit card transaction, which isn’t really cash, right, because the other side is going to the credit card. And then the other is a bill type of transaction that we used in order to purchase the equipment, which again, isn’t really a cash transaction.
17:02
So the change that’s taking place here is coming from two transactions, that that may not exactly be cash related transactions. So you know, when you get more complex transactions related to the purchase of equipment, possibly financing and putting the down payment, the disposal of equipment and sale of equipment, those are some transactions that can be a little bit more complex for QuickBooks to break out. And then down here, you’ve got the financing activities.
17:30
So these are things like the loans, which again, if you if you have some more complexity in the loans, it could also be an area which can be a little bit more confusing if you took a loan out, for example, to finance the equipment, and that year, and so on. If I double click on this, you can see that it’s pulling this up this this change from basically the bill forms that are being put in in the loans. And so that’s going to give us the net cash provided by the investing activities, net cash provided by the financing activities. And then if I take the total of these activities, let’s go ahead and put them down, here’s the totals of them, then we’ve got them the the 13180 9.17, minus the 115 or minus 30 470 8.15, that’s going to give us the net increase in cash at 560202,
18:23
we would like to get then to the ending balance on the balance sheet, not simply the change in cash to get there, then we could take the cash at the beginning of the period. To see that let’s make one more balance sheet up top reports up top company and financial. And then we’re going to go to the balance sheet standard again. And I’m going to make a balance sheet as of let’s make it as of 1231 to two the prior year that the one we’re looking at. And then if I take a look at the cash account 1230 122 We then have a negative cash here, which was the 40 680 8.81 and then undeposited funds minus the 1-825-218-1825 2.08. So that gives us the 28 558 statement of cash flows. That’s where they’re getting this 2020 855 6.73
19:30
And so that so then that gets us to the ending balance right. So, if I take this 8560 1.02 the change in cash, and then I then I look at the beginning balance and I say minus the beginning balance 2855 6.73 We get to the Indian balance the 57 Oh 44.29 which is categorized on the balance sheet, the current balance sheet date, which is as we saw the This plus the undeposited funds, again, let’s do it one more time 5460 4.29 plus the undeposited funds of the 2440 5704 429, matching the statement of cash flows. Now, if there are any problems with the categorization, notice the depreciations, another area where you could have kind of issues that would be involved, if you sold the equipment again, or something like that, you could kind of change the categorization.
20:31
And you could do that by going to the Edit, drop down preferences, and then you could go into the reports to the reports and graphs. And then we want to go to the company and financial classify cash. And so these then you can see that these are basically taking, like the balance sheet accounts here, and then applying them to to the, to the category that you need to apply them to. So for example, it’s taking the accounts receivable and applying it to the operating activity, which of course, would be the case because the other side of it is income.
21:09
And it’s taking the furniture and fixtures and applying these out. And you can see kind of how this is working, because all it’s doing is taking those changes those differences and applying them out so that we still have something that’s in balance in that it will tie into the Indian cash account on the balance sheet. But when you have situations where things are a bit more complex, you have transactions that are that are resulting in categories in different in different categories like a transaction that is selling equipment that could have different cat could could result in a change in accumulated depreciation, as well as a loan, you know, a sale kind of amount.
21:46
And again, amount that’s going to be on the income statement, those kind of transactions get a little bit more complex to just simply assign out the difference using this little check mark category. And they might need further adjustments to it. But it works pretty good for the most part. And it gives at least a really good like starting point on the statement of cash flow. So I’m going to close this out. And I’m going to close that out. So that’s the general the general idea for the statement of cash flows.
22:12
Again, we have a whole nother course to put together a Statement of Cash Flows if you want to understand it in more detail. If you can put together a statement of cash flows from the financial statements, that is somewhat complex statement of cash flows, you’re really getting a better understanding of the accrual process. It’s worth doing