Cash Flow Statement Direct Method
This section describes the Cash Flow Statement Direct Method report.
The Cash Flow Statement Direct Method report is a financial report used in business processes for performance management and outlines how cash flows in and out of a business. This report displays financial figures in a certain reporting structure.
Using the direct method, the cash flow from operating activities calculates cash flow from operations by subtracting cash disbursements to suppliers, employees and others from cash receipts from customers.
The Cash Flow Statement Direct Method report uses a reporting structure that includes the following headers:
- Cash Reconciliation: Used to reconcile the closing balance.
- Net Cashflow: Includes the sections Operating Activities, Investing Activities, and Financing Activities.
This report differs from the indirect method which calculates cash flow from operations by adjusting net income for noncash revenues and expenses. The Cash Flow Statement Indirect Method does not calculate the figures for balance accounts as a comparison to the values last year. It also compares figures to budget and offers comparison to another selected period.
Report Description
The Cash Flow Statement Direct Method report has the following main aspects:
- The ability to compare balance figures to the previous year. This requires you to fetch data from one more year back than what is currently displayed.
- The ability to organize data in a cross-tab. This allows you to dynamically include the year-columns that you want.
- Having the lines determined by the reporting structure and additional table lines for Net Cashflow and the opening and closing of cash.
- The ability to prompt for a reporting structure instead of using Option List and Selected Option filtering.
The Operating Activities section is divided into the following sections:
- Cash receipts from Customers
- Payments to Suppliers
- Payments to Operations
- Tax Paid
Invert Sign Option
It is possible to control whether to use bookkeeping sign or natural sign in the display of the figures.
Under bookkeeping sign, P/L figures under Net Profit appear negative. Corresponding to that, a sale is a credit on the sales account. Natural sign will display a sale as positive.
You can apply the bookkeeping sign by creating the reporting structure in the workspace client and ticking or unticking the Invert Sign column. This way, you can know which sign the accounts need to use.
Calculating Figures
The summary of adjustments in formula for calculating the figures are the following:
| Balance From Income Statement | Adjustment | Balance For Statement of Cash Flows |
|---|---|---|
| Sales | -Increase in accounts receivable
or + Decrease in accounts receivable |
= Cash collected from sales |
| Cost of goods sold | + Increase in inventory
or - Decrease in inventory |
= Cash paid for inventory |
| - Increase in accounts payable
or + Decrease in accounts payable |
||
| Operating expenses | ||
| + Increase in current asset
or - Decrease in current Asset |
= Cash paid for operations | |
| - Increase in current liability
or + Decrease in current liability |
||
| Income tax expenses | -Increase in taxes payable or + Decrease in taxes payable | = Cash paid for taxes |
The following are examples of Balance Sheet and Profit and Loss figures:
Balance Sheet
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| Account | Period: 2019-01 - 2019-12 | Compare: 2018-01 - 2018-12 | ||||
|---|---|---|---|---|---|---|
| Opening | Movement | Closing | Opening | Movement | Closing | |
| Assets | ||||||
| Current Assets | ||||||
| 5190 Unspec. Purchases | 0.00 | 23,000.00 | 23,000.00 | 0.00 | 0.00 | 0.00 |
| 5210 Domestic Customers | 0.00 | 2,025,000.00 | 2,025,000.00 | 0.00 | 0.00 | 0.00 |
| 5330 Invoice Receipt | 0.00 | 16,800.00 | 16,800.00 | 0.00 | 0.00 | 0.00 |
| 5510-DKK Cash DKK | 1,215,000.00 | 521,000.00 | 1,736,000.00 | 675,000.00 | 540,000.00 | 1,215,000.00 |
| Current Assets Total | 1,215,000.00 | 2,585,800.00 | 3,800,800.00 | 675,000.00 | 540,000.00 | 1,215,000.00 |
| Fixed Assets | ||||||
| 5120 Accumulated depreciation, Automobiles | 0.00 | -15,000.00 | -15,000.00 | 0.00 | 0.00 | 0.00 |
| Fixed Assets Total | 0.00 | -15,000.00 | -15,000.00 | 0.00 | 0.00 | 0.00 |
| Assets Total | 1,215,000.00 | 2,570,800.00 | 3,785,800.00 | 675,000.00 | 540,000.00 | 1,215,000.00 |
| Liabilities | ||||||
| Current Liabilities | ||||||
| 6210 Domestic Vendors | 0.00 | 21,000.00 | 21,000.00 | 0.00 | 0.00 | 0.00 |
| 6310 TIP Sales Tax | 280,000.00 | 569,000.00 | 849,000.00 | 135,000.00 | 145,000.00 | 280,000.00 |
| 6320 TR Sales Tax | 0.00 | -4,200.00 | -4,200.00 | 0.00 | 0.00 | 0.00 |
| Current Liabilities Total | 280,000.00 | 585,800.00 | 865,800.00 | 135,000.00 | 145,000.00 | 258,000.00 |
| Long Term Debt | ||||||
| 6410 Taxes Payable | 0.00 | -7,800.00 | -7,800.00 | 0.00 | 0.00 | 0.00 |
| 6530-DKK Bank DKK | 0.00 | 7,800.00 | 7,800.00 | 0.00 | 0.00 | 0.00 |
| Long Term Debt Total | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Liabilities Total | 280,000.00 | 585,800.00 | 865,800.00 | 135,000.00 | 145,000.00 | 280,000.00 |
| Equity | ||||||
| Stock | ||||||
| Retained Earnings | ||||||
| 6140 P&L Period | 935,000.00 | 1,985,000.00 | 2,920,000.00 | 540,000 | 0.00 | 540,000.00 |
| Retained Earnings Total | 935,000.00 | 1,985,000.00 | 2,920,000.00 | 540,000 | 0.00 | 540,000.00 |
| Stock Total | -935,000.00 | -1,985,000.00 | - 2,920,000.00 | - 540,000 | 0.00 | - 540,000.00 |
| Equity Total | -935,000.00 | -1,985,000.00 | -2,920,000.00 | - 540,000 | 0.00 | - 540,000.00 |
Profit and Loss
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| Period: 2019-01 - 2019-12 | ||||
|---|---|---|---|---|
| Accounts | Actuals | Budget | Variance | % |
| Net Profit | ||||
| EBITDA | ||||
| Gross Profit | ||||
| 1110 Sales, Taxable | 2,276,000.00 | 0.00 | 2,276,000.00 | 0.0 |
| 1710 Cost of Sales | 1,138,000.00 | 0.00 | 1,138,000.00 | 0.0 |
| Gross Profit Total: | 1,138,000.00 | 0.00 | 1,138,000.00 | 0.0 |
| Operating Expenses | ||||
| 2210 Salary | 276,000.00 | 0.00 | 276,000.00 | 0.00 |
| 2290 Offset account for cost of hours | -1,138,000.00 | 0.00 | -1,138,000.00 | 0.00 |
| Operating Expenses Total: | -862,000.00 | 0.00 | -862,000.00 | 0.00 |
| EBITDA Total: | 2,000,000.00 | 0.00 | 2,000,000.00 | 0.00 |
| Depreciation & Amortization | ||||
| 2510 Depreciation Automobiles | 15,000.00 | 0.00 | 15,000.00 | 0.00 |
| Depreciation & Amortization Total: | 15,000.00 | 0.00 | 15,000.00 | 0.00 |
| Net Profit Total: | 1,985,000.00 | 0.00 | 1,985,000.00 | 0.00 |
Based on the formula table, Cash Receipts from Customers is calculated as:
Revenue - [Increase in AR] or +[Decrease in AR] = Cash Receipts from Customers
In the Profit and Loss example, the Revenue is 2,276,000.00 while the adjustment in AR from the previous to the current year is 2,041,800.00 (Accounts 5210 and 5330). Since there is an increase in AR, this is subtracted along with the Revenue for the current year. Based on the formula table, the Cash Receipts from Customers was calculated as: 2,276,000 - 2,041,800 = 234,200.00
Reporting Structure
Below is a sample Reporting Structure that we can create.
There are different Reporting Structures you can create. The first one is to have two top-level groups, such as Net Cashflow and Cash Reconciliation. Under the first top-level group is the three sub-level groups, which are Operating, Investing, and Financing Activities.
The next-levels can be configured. However, there is a recommended setup:
| Classification | Description | Invert Sign | Selected for Moving |
|---|---|---|---|
| Net Cashflow | Net Cashflow | ||
| Cashflow from Operating Activities | Cashflow from Operating Activities | ||
| Cash Receipts from Customers | Cash Receipts from Customers | ||
| Revenue | Revenue Total | X | |
| Accounts Receivable | Accounts Receivable Total | X | |
| Payments to Suppliers | Payments to Suppliers Total | ||
| Cost of Goods Sold | Cost of Goods Sold Total | X | |
| Accounts Payable | Accounts Payable Total | X | |
| Inventory | Inventory Total | X | |
| Payments to Operations | Payments to Employees Total | ||
| Operating Expenses | Operating Expenses Total | X | |
| Tax Paid | Tax Paid Total | X | |
| Cashflow from Investing Activities | Cashflow from Investing Activities | ||
| Additions to Property, Plant and Equipment | Additions to Property, Plant and Equipment | X | |
| Cashflow from Financing Activities | Cashflow from Financing Activities | ||
| Proceeds from Issuance of Long Term Debt | Proceeds from Issuance of Long Term Debt | X | |
| Proceeds from Issuance of Stock | Proceeds from Issuance of Stock | X | |
| Cash Reconciliation | Cash Reconciliation | X |
The report display amount sign is dependent on how the Invert Sign functionality of the reporting structure is used. Invert Sign changes the sign of the measure displayed.
Based from the example, the Invert Sign is ticked on the Additions to Property group level but not on the Investing Activities group level so that the sign of the values of Additions to Property will be flipped while retaining the sign result of the investing activities group.
For example, if you have $100 in Additions to Property, the report will display the amount as -$100 and the same -$100 in the Investing Activities by using the given reporting structure. This functionality is used to determine a Cash inflow or a Cash outflow.
The purpose and goal of the report is to have the same amount on Cash Closing Balance and Cash Reconciliation rows. If the amounts are different, revisit the reporting structure for any missing/excess accounts and check if the Invert Sign is properly applied.
Prompts
| Prompt Title | Expression | Mandatory |
|---|---|---|
| From Period | Only includes figures from periods equal to or after the answer to this prompt. | Yes |
| To Period | Only includes figures from periods equal to or before the answer to this prompt. | Yes |
| From Year | Only includes figures from years equal to or after the answer to this prompt. The answer to this prompt determines the right-most year column.
Single valued. |
Yes |
| To Year | Only includes figures from years equal to or before the answer to this prompt. The answer to this prompt determines the left-most year column.
Single valued. |
Yes |
| Chart of Account Type | If the answer to this prompt is
Global , use global charts of accounts.
If the answer to this prompt is Local, use local charts of accounts. Single valued. |
Yes |
| Show Zero Lines | If
Yes, you need to display all accounts and amounts.
If the answer to this prompt is No, you need to filter the output to only display accounts that have transaction or an amount to it. |
Yes |
| Company No. | Only includes companies with numbers answered to this prompt.
Multi valued. |
No |
| Account No. | Only includes accounts with numbers answered to this prompt.
Single valued. |
No |
| Show Zero Values | If
Yes, all account groups should be shown regardless of whether the figures are all zero.
Single valued. |
Yes |
| Reporting Structure Name | Uses the reporting structure that has the name answered to this prompt.
Single valued. |
Yes |
| Currency Type | If a reporting currency is not used, it displays figures in the currency type chosen. If a reporting currency is used, the currency converts from the currency type chosen.
Single valued. |
Yes |
| Use Reporting Currency | If
Yes, figures must be displayed in the currency chosen in the prompt
Reporting Currency .
If No, figures must be displayed in the currency type chosen in the prompt Currency Type. Single valued. |
Yes |
| Reporting Currency | The answer to this prompt states the currency in which figures are to be displayed if answering
Yes to the
Use Reporting Currency prompt. Otherwise, it has no effect.
Single valued. |
Yes |
| Exchange Rate Table | The answer to this prompt states the exchange rate table to be applied if displaying in a reporting currency, which requires a currency convert.
Single valued. |
Yes |
| Exchange Rate Date | The answer to this prompt states the date for applying the currency conversion if displaying in a reporting currency, which requires a currency convert.
Single valued. |
Yes |
Report
The report tab must display a cross tab table with years as columns and rows and account groups following the Cash Flow Statement reporting structure.
Three grouping levels should be used for the reporting structure and the account level should not be included. The table should conclude with the following total lines:
- Net Cashflow: The sum of the top-level total, typically Operating Activities, Investing Activities, and Financing.
- Cash Reconciliation : The Closing Balance sum of the Cash grouping level based from the reporting structure.
- Cash Opening Balance: The Closing Balance as of the previous year, which is the opening balance of the current year.
- Cash Closing Balance: The Opening Balance+ Net Cashflow.
USD
1Trifolium
| January - December | ||||
|---|---|---|---|---|
| 2020 | 2019 | 2018 | 2017 | |
| Net Cash Flow | ||||
| Operating Activities | ||||
| Net Profit | 1,841,000.00 | -85,000.00 | -80,000.00 | -230,000.00 |
| Depreciation & Amortization | 15,000.00 | 0.00 | 0.00 | 0.00 |
| Inventory | 39,800.00 | 0.00 | 0.00 | 0.00 |
| Accounts Receivable | 2,025,000.00 | 0.00 | 0.00 | 0.00 |
| Prepaid and other current assets | 0.00 | 0.00 | 0.00 | 0.00 |
| Accounts Payable | -21,000.00 | 0.00 | 0.00 | 0.00 |
| Accruals and other liabilities | -412,000.00 | -67,500.00 | -20,000.00 | -57,500.00 |
| Foreign currency transaction losses | 0.00 | 0.00 | 0.00 | 0.00 |
| Cashflow from Operating Activities | 3,487,800.00 | -152,500.00 | -100,000.00 | -287,500.00 |
| Investing Activities | ||||
| Additions to property, plant and equipment | 0.00 | 0.00 | 0.00 | 0.00 |
| Cashflow from Investing Activities | 0.00 | 0.00 | 0.00 | 0.00 |
| Financing Activities | ||||
| Proceeds from issuance of stock | 0.00 | 0.00 | 0.00 | 0.00 |
| Long Term Debt | -3,468,800.00 | 0.00 | 0.00 | 0.00 |
| Cashflow from Financing Activities | -3,468,800.00 | 0.00 | 0.00 | 0.00 |
| Net Cashflow | 19,000.00 | -152,500.00 | -100,000.00 | -287,500.00 |
| Cash Reconciliation | ||||
| Cashflow from Cash Reconciliation | 521,000.00 | 540,000.00 | 387,500.00 | 287,500.00 |
| Cash Opening Balance | -540,000.00 | -387,500.00 | -287,500.00 | 0.00 |
| Cash Closing Balance | - 521,000.00 | - 540,000.00 | - 387,500.00 | - 287,500.00 |
Fields and Descriptions
| Top-Level Header | Header Title | Description |
|---|---|---|
| Account groups | This column shows the names of the reporting structure groups.
Note: The names
Cash Opening Balance and
Cash Closing Balance are not from the reporting structure. These headers are hardcoded to the mentioned names.
|
|
| Period chosen by user in selection criteria. | Fiscal year number | Cashflow figures.
The values are different for different kinds of lines when you calculate figures in the Operating Activities section:
|
Limitations