Most business people today are familiar with the two standard financial statements: Balance Sheet and Income Statement. But there is a third meaningful statement available in your Sage 50 software: the Cash Flow Statement.

Here is a bit of definition:

• The Balance Sheet is a snapshot of the financial condition of a business as of a specific time,  summarizing  assets, liabilities and net worth. It tells the business what it owns, what it owes, and what it is worth.
• The Income Statement is an historical record that shows how much revenue and expense a business incurred, and the resulting amount of net income achieved, over a specific period of time .
• The Cash Flow Statement shows how cash flowed in and out of the business over a specific period of time and usually encompasses the same time frame as the corresponding income statement. An income statement may show a profit, yet the business may not be generating enough cash to meet its financial obligations.

The Cash Flow Statement summarizes cash transactions into three activities: operating, investing and financing.

Operating: Cash flows in as the net result of sales and purchases of goods and services.

Investing: Cash flows out from activities intended to generate income in the future, such as the sale and purchase of long term assets.

Financing: Cash flows in and out from transactions with stockholders and creditors, such as issuance of stock, dividend payments, loans, mortgages and notes received and repaid.

Try running the cash flow statement along with your periodic balance sheet and income statement. The cash flow statement should provide you with relevant information to assess your company’s liquidity, quality of earnings, and solvency.

To access the cash flow statement in Sage 50, choose “Reports & Forms”, “Financial Statements”, “Cash Flow”. It is the third listed “standard” financial statement in the menu (after any customized financial reports you may have constructed).

The accuracy and correctness of the cash flow statement is of course dependent upon the correct  classification of your accounts into the proper “types” within your chart of accounts.

Need help constructing a better chart of accounts to facilitate financial reporting objectives? Give us a call at 610-941-2116, or send an email to info@tristardatasystems. com.  We have helped hundreds of companies improve their Sage 50 financial reporting capabilities with a few simple design modifications to the chart of accounts.