Let's walk through an example of how you can use this cheat sheet to help you book your entries. Making a loan payment decreases your cash flow -money leaves the businessĪn Example How To Use The Cheat Sheet How To Record a Term Deposit Taking out a loan increases your cash flow - money comes into the business Best policy for your cash flow is to never pay bills early. Your cash flow will decrease in the future when you pay your bills (your Accounts Payable). The amount sits in your Accounts Payable. You could run into a cash crunch if you have paid your bills on time (cash left the business) but your customers have not paid you on time (cash did not come into the business to offset the cash going out).Ī cash purchase decreases your cash flow - cash going outĪ credit purchase (you purchased on payment terms or a credit card) has no effect on your cash flow - there is no cash coming into the business or leaving the business. Your cash flow will increase in the future when customers pay your invoices (your Accounts Receivable). The amount sits in your Accounts Receivable. There are also transaction that hit your balance sheet (assets and liabilities) that do affect your cash flow but not your income statement.Ī cash sale increases your cash flow - cashing coming inĪ credit sale (you extended payment terms) has no effect on your cash flow - there is no cash coming into the business or leaving the business. Many items that hit the income statement (sales revenue and expenses) do not affect your cash flow. Where it is easy to get confused when first learning debits and credits is learning the difference between cash and non-cash entries. In color accounting, debits are green and credits are yellow while purple represents profit/income statement.Ĭonfused - Maybe The Effect On Cash Flow Is The Problem **If you learned color accounting, I've added the colors as a references.
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