CASH FLOW STATEMENT

Definition: A cash flow projection is a forecast of cash funds a business anticipates receiving and disbursing throughout the course of a given span of time.

 Objective: The purpose of preparing a cash flow projection is to determine deficiencies or excesses in cash to operate the business during the time for which the projection is prepared. If deficiencies are revealed in the cash flow, financial plans must be altered to: 1) provide more cash (e.g. from equity invested, loans, increased sales, etc.); 2) reduce expenditures (including inventory); 3) allow less credit sales until a proper cash flow balance is obtained. If excesses of cash are revealed, it might indicate excessive borrowing or idle money that could be “put to work.” The objective is to finally develop a plan which, if followed, will provide a well-managed flow of cash.

 PROFIT & LOSS STATEMENT

Definition: Income Statement, also commonly referred to as Profit & Loss Statement, displays the revenues recognized for a specific period and the costs and expenses charged against these revenues.  It represents summary of net income over a period of time.

Objective: The purpose of the statement is to show whether the business made or lost money during the reported period.