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We won’t be so bold to say cash flow worksheets are like snowflakes or a ten-minute drum solo, but we probably don’t have to. They’re company-specific, never one-size-fits-all, and always require a skilled hand to bend them to the very particular needs of an organization.

Maybe it’s the somewhat nebulous nature of a cash flow worksheet that makes it a bit more perplexing than others, demanding sufficient knowledge and, just as importantly, insights into a company’s unique operations to craft one that is useful, revealing, and stays on the right side of the accounting gods.

Download: Cash flow worksheet template

To give your accounting team a bit of guidance culled from our vast experience, Embark has prepared a Cash Flow Worksheet Template to make your own. No, our example is not meant for you to download and plug into your accounting process. In fact, we wholeheartedly recommend avoiding such behavior. Instead, we’ve purposely created a bit of a Frankenstein worksheet, one that encompasses the basics along with a few more atypical or industry-specific entries that, while not being very pretty to look at, provides insights for a wide variety of companies from several different industries.

So on that note, download our informative template, couple it with the following basics and best practices, and make one for your company that suits your organization well, bends to your needs, and adequately informs a compliant and beneficial statement of cash flows.

Cash Flow Basics

First of all, let’s start with a bit of a caveat. While there are both direct and indirect methods for recording cash flows – the difference stemming from operating activities – our template and thoughts specifically revolve around the indirect method. It’s by far what we see most on a daily basis, is most common amongst our partners, and offers some distinct advantages, including:

  • Reconciles accrual-based net income from operating activities based on actual cash flow
  • Begins with net income and directly links the balance sheet and income statement
  • Better reveals how non-cash transactions stem from net income and not a cash flow source

With that out of the way, an overview of some cash flow basics is in order. To begin with, cash flow is the net amount of cash that a company receives and spends during a given period of time and comes from three possible sources:

  • Operating activities – These activities include all transactions and other events that are not defined as investing or financing activities. The typical inflows include incoming cash paid by customers to a company for its services or goods, whereas outflows of cash or expenses are made as part of ordinary operations, including payroll, COGS, utilities, and rent.
  • Investing activities – These activities could include making and collecting loans and acquiring and disposing of debt or equity instruments and property, plant, and equipment and other productive assets. For instance, proceeds from a company’s investment are a cash inflow from an investment activity, while outflows are items like payments made towards an investment, loans to other organizations, or the purchase of equipment, land, buildings, or other fixed assets.
  • Financing activities – These activities could include obtaining resources from owners and providing them with a return on -- and of -- their investment; borrowing money and repaying amounts borrowed; obtaining and paying for other resources obtained from creditors on long-term credit. For example, debt incurred by a company is considered an inflow of cash from financing activities, while outflows are interest and/or principal payments on debt, pay dividends, or a stock buyback. The key here is to present the cash flows as gross-out and gross-in values rather than net figures.

Cash Flow Best Practices

Obviously, having an accurate cash flow worksheet and subsequent statement of cash flows is important for reasons other than compliance. Your worksheet is a barometer that gives you an essential read on your liquidity, a gauge that might not be the end-all, be-all for financial health, but certainly goes a long way in identifying the different inflows of cash, areas where cash is hemorrhaging, and how your cash position changes from period to period. Therefore, you want your worksheet to be insightful, straightforward, and capable of informing your company’s decision-makers. Keep a few best practices in mind to get the most from your cash flow worksheet.

Keep Tabs Year-Round

Throughout the year, take note of any large transactions that are non-cash items in the income statement, both gains and losses, as well as non-cash adjustments in the balance sheet. For the sale of fixed assets, list the book value of the asset in the investment activities section and any gain/loss in the operating activities. Remember to deduct gains from net income and add losses to it in the operating activities to avoid double counting.

Complete Your Financials Beforehand

The indirect method begins with net income, so it only stands to reason that inaccurate or incomplete data threatens the reliability of the entire worksheet. That leads to inaccuracies in your statement of cash flows which, as the kids say, is no bueno. Start your cash flows early, plug in your big transactions – both anticipated and completed – then wait on the items that are just indirect changes, linking data as you go to save time and frustration down the road.

Download: Cash flow worksheet template

No Dilly-Dallying

Procrastination is the mortal enemy of nearly every financial function, from audit preparation to, you guessed it, your cash flow worksheet. Just as you’ve always heard, don’t leave for tomorrow what you can do today. Stay on the ball throughout the year to avoid rushed work and entries that don’t lend themselves to accuracy and reliability. Likewise, be cognizant of especially complicated or large transactions on the horizon and how they might impact your cash flows.

Foreign Currencies

Income or expenses in foreign currencies can easily skew your cash flow worksheet with exchange rates that you fail to account for properly. When inflows or outflows differ from your reporting/functional currency, accurate cash flows quickly get lost in translation or, more accurately, lost in a lack of translation.

Balance Sheet/Income Statement Reclassifications

Always be on the lookout for reclassifications or changes in your income statement or balance sheet classifications. For example, if a long-term liability line changes to a short-term accrued liabilities line, it’s easy to double-count the items and artificially skew your cash flow. Likewise, remember to account for capital lease additions -- non-cash additions of the right of use asset and liability -- by removing their impact from the cash flow worksheet.

Be Aware of the Cash Flow Periods You’re Using

If you’re preparing a monthly, quarterly, or annual cash flow in conjunction with a year-to-date calculation, be aware of the most effective methods to use to prevent yourself from spending too much time and losing accuracy. For instance, rather than recreating a year-to-date cash flow every month, it’s easier and usually more accurate to simply add up all of your monthly cash flows up to that point of the year.

Link to Supporting Data

You know the old adage, work smart, not hard? Your cash flow worksheet gives you a fine opportunity to embody that credo, particularly when including supporting data. Whenever possible, use links and supporting tabs rather than hard-entered data to automate any updated information. For instance, embedding links to trial balance and financial statement reports rather than manually entering the data saves time, resources, and significantly reduces the chances of error.

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With Embark’s template, explanation, and best practices on cash flow worksheets, you’re well on your way to creating an ongoing source of vital liquidity information that will serve your leaders and enterprise well. Be vigilant, organized, and tailor your worksheet to your specific needs to maintain an accurate, insightful pulse on your cash flows that guides better decision-making.

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