Creating Cash Flow Statement Part - II



Preparing a Cash Flow Statement for MSME is one of the easier tasks among the financial statements.


First of all, we need to choose the period - daily/monthly/quarterly/half-yearly/yearly.

Take two data - opening balance i.e start of the period(bank balance and cash in hand) and closing balance i.e end of the period(bank balance and cash in hand).


Balance = Bank balance + Cash in hand

Calculate net cash from the opening and closing balance. It can be positive or negative.


Positive means more cash inflows than cash outflows
Negative means more cash outflows than cash inflows

Add a Cash Inflow heading and Cash Outflow heading.

Cash Inflow - Whatever cash comes in to your business
Cash Outflow - Whatever cash goes out of your business

Note: Take care of depreciation which I have explained in part - I

After you have done everything, the net balance and net cash flow should be equal.

  • If your net cash flow is negative, then you have a working capital problem.

  • If your cash flow is negative for continuous periods, then you should aim cost-cutting and process improvement ideas

  • Business needs to have sufficient cash at disposal for day to day operations to sustain in the competitive environment

  • Continuous positive net cash flow means more amount sitting idle, look for investment opportunities with high return.

  • Avoid unnecessary depreciation assets with no value or return


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Disclaimer: This article is me speaking to me through this blog! Short Intro: If you want to innovate in a particular field, you need to understand how things work in the first place. Innovation is a