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Cash flow statements: explaining changes in cash
A cash flow statement helps explain why the bank balance changed while the business reported a different profit. Reconcile actual cash movement before using the statement in a financing discussion.
This guide describes common bookkeeping practice, not a legal or regulatory requirement.
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General information, not legal or tax advice.
Start with the beginning and ending cash balances
As bookkeeping practice, reconcile the bank accounts and identify which balances the statement covers. Separate internal transfers from money entering or leaving the business. This establishes a clear starting point before grouping cash movements or explaining the difference from reported earnings.
Organize movements by their purpose
A common presentation groups operating, investing and financing activity. Use customer collections and supplier payments, asset purchases and borrowing records to explain each group. These presentation categories are practical bookkeeping guidance here, not a claim about a mandated reporting format.
Bridge earnings to repayment capacity
SBA describes applicant cash flow as the primary repayment source. Its lender guidance calls for documenting EBITDA and justifying adjustments such as capital expenditures, nonrecurring items and distributions. Keep that lender analysis distinct from a simple list of bank transactions, with a trail back to the financial statements.
Supply historical statements alongside projections
For an established business plan, SBA requests income statements, balance sheets and cash flow statements for the last three to five years. Forecasts are requested separately. Label historical results and projections clearly so an expected receipt cannot be mistaken for cash already collected.
Sources: SBA - Plan your business (Write your business plan)
Sources: start with the beginning and ending cash balances
Related records and decisions
Explain where business cash went
Tidwell helps reconcile the books and organize supporting schedules for your business decisions. We work with your CPA on tax questions and the financial records they need.