Hello, I was wondering if someone could help me with building my cash flow as I am unable to make it tie to my beginning and ending cash. It is for a homework and we are asked to build financial statements from scratch. I have my Balance sheet and income statement, but my cash flow isn't tieing.

Yeah you'll need the CF statement but you can start building it. Start with Net Income, add back D&A (it's a non-cash expense that you burden Net Income with) and add back (or subtract) changes in NWC (net working capital) to calculate CF from Operations. Subtract Capex (which you'll need the CF statement for) and you'll get FCF. From there you'll need CF from Investment and CF from Financing Activities and your ending cash balance (changes in cash from this period plus begging cash) should equal current cash on the balance sheet.

To generalize an important concept, every change on the balance sheet should be reflected somewhere in the cash flow statement: Changes in many current assets (like Accounts Receivable) and current liabilities (like Accounts Payable) are reflected in the change in working capital, incorporated in the CFO Changes in many long term assets such as PP&E are reflected in the CFI Changes in many long term liabilities such as debt and stockholders' equity are reflected in the CFF There are some exceptions to the above but in general you can always reach what the total change in cash is because i

Re #2, not a coincidence that this is happening. Your proceeds from issuance of common stock is high by $5,067,000 (Ending Retained Earnings = Beginning Retained Earnings + Net Income - Dividends --> which flows into your SE account). The number in CFF should be $14,345,980. Your PP&E, net is low by $5,154,000 (Ending PP&E, net = Beginning PP&E, net + New PP&E - DD&A). The number should be -$7,379,000 instead of -$2,225,000. This should balance your CFS.

Need help with cashflow

dr_mantistoboggan_MD

Best Response

Im pretty sure the owners equity section is a little wonky and that's whats throwing you off (the assignment was poorly designed). The owners equity is increased by both the net income through retained earnings for the year and the additional paid in capital but for some reason it looks like the assignment lumped them both together as additional paid in capital. So in reality you're double counting your net income (first time at the top of the CF statement which is good and then again when you have the cash flow from financing). CF from financing should be the figure you got, less Net income.

Also you're not accounting for your Depreciation in your CapEx Figure you added it back into the Net Income figure but then used the Net PPE figure when doing your Capex rather than gross. Think of it this way, when you buy a building the cash outflow of the building is its gross figure, not the gross minus depreciation at the end of the year, so while the depreciation is a "non cash expense" that doesnt mean you exclude it from the Capex equation.

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Need help with cashflow

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