A Very Important QB Report That Is Neglected

The Statement of Cash Flows, which is pictured above, is a very important report that many business owners don't know about. Why is this report so important? Simply put, it tells you where your cash is coming from and where it is going.There are three major components - Operating Activities, Investing Activities and Financing Activities. Operating Activities starts with Net Income and then is adjusted for changes in various G.L. Accounts. In this example, Accounts Receivable is a negative $8,086.50. The reason it is negative is because the A/R balance increased. Since A/R is going up, it means that cash is not being collected. Accounts Payable contributes a positive $502.00. This is because A/P increased, which means that cash is not leaving the company.

Investing Activities show how much is being spent on Investments and Fixed Assets. The reason that Computer & Office Equipment is negative is because cash is being spent on Fixed Assets.

Financing Activities shows where the money that is being invested is coming from. In this case, it is a negative  $123,000. That is because the owner is withdrawing cash from the company.

Probably the most important thing to look for is whether or not Net Cash provided by Operating Activities is positive. If it is negative and stays negative over more than one period, it means that your company is in trouble and could be running out of cash. Unless you have access to an unlimited supply of cash, you simply cannot stay in business if you a running negative on cash flow from Operations on an ongoing basis.