Cash Flow Statement
The 'Cash Flow Statement' answers the questions about the money itself - where did it come from and where has it gone?
The Cash Flow Statement is not used often outside of commerce and industry, but it is often easier to understand as part of the internal Management Accounts process, to help you understand your business better.
When a sales invoice is raised, the money might not come in for several weeks. Similarly a purchase invoice may not be paid for several days or weeks.
These differences in timing are what distinguishes a Profit and Loss Account from a Cash Flow statement.
A Profit and Loss Account is based either on the invoice date, or the date a product is used or sold.
A Cash Flow Statement is based on the dates the money moved.
A Cash Flow statement should start with opening bank and cash balances, then add the money which has actually come in from sales invoices, then deduct the money gone out to pay bills, repay loans, pay staff etc. This leaves the closing bank and cash balances.
A Cash Flow statement is not the same as a Funds Flow statement, the latter being a legal requirement for large companies, but not for small businesses.