Cash Flow

The ability of a business to turn its assets and liabilities along with production into cash. It is typically measured in dollars and is reported in a separate financial statement at the end of the accounting cycle.

Cash Flow From Operations – Understanding Cash Flow (Part II)

There are two fundamental basis of accounting – accrual and cash basis.  In cash basis of accounting, a cash flows statement is unnecessary as the income statement will clearly identify the change in cash.  But there is a significant drawback to cash basis accounting.  In general, it does not convey the true financial performance of …

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Cash Flow From Operations – Basic Formula

The cash flows statement in accounting is broken out into three major sections as follows: 1) Cash Flow from Operations 2) Cash Flow from Investing 3) Cash Flow from Financing Of the three, cash flow from operations is the most prominent.   It identifies if the company is making money from its regular ongoing purpose.   …

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Accounts Payable Turnover Rate (Ratio)

The accounts payable turnover rate is a business activity ratio measuring the frequency of the company’s ability to pay its vendors and suppliers.  The numerical value is customarily reported as an annual value.  The higher the number, the more often the payables are cleared (paid).  A ’12’ would indicate that all payables are paid every month …

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Gathering Data from Sales

In business the best source of new business is the existing customer.  Discovering the customer’s habits and characteristics allows the sales department to expand into new geographical territories with similar customer characteristics and/or modify the existing product lines.  The key to success is gathering the proper information at the point of sale. The best example …

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Fixed Assets To Debt Relationship

Every business owner, especially young entrepreneurs, must understand how long-term debt  is used to finance the purchase of fixed assets . It is a basic principle especially for start-ups. There is a relationship that exists between the two. If created correctly, profitability is enhanced and cash flow is maximized. But most business owners lack the knowledge about …

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Cash Flows – Introduction

Insolvency is defined as the inability to pay liabilities as they come due. To meet the demand of creditors cash is required. For most small businesses there are as little as a single source to multiple sources of cash. Think about these two extreme examples: * Food Vendor  – an extremely small business with one primary source …

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Financial Statements for the Small Business

Financial statements serve the purpose of presenting economic activity and status related to a particular date and over a particular time frame.  Accountants record monetary transactions and via financial reports present the information in an easy to understand format.  The financial statements for a small business do not have to comply with those of publically …

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Accounting refers to the business function of recording economic activity.  Accounting includes the processing of information and a reporting role.   The accounting term encompasses a broad range of functions for every business.  It starts out with a system of gathering economic information, categorizing the material, inputting the data into an accounting program, and generating outputs …

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Insolvency and Bankruptcy – Know the Difference

Every business owner needs to know the difference between insolvency and bankruptcy.  Often these two terms are misunderstood and improperly used in conversation.  You need to know their correct meaning because both are used in civil law and both have different issues to address during the process.  In addition, understanding these two terms builds a …

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