Using bank feeds to create a cash flow statement

24th February, 2016

Online accounting software has developed in leaps and bounds over recent years. Technology is moving so fast it’s almost too hard to keep up with it all.

As a bookkeeper, if I had to choose just one advancement that I couldn’t live without, it would be bank feeds. I absolutely love bank feeds!

Gone are the days where you have to log into the bank, download a statement, print it off and manually enter in your transactions. There are now no excuses for your bank transactions not being up-to-date and reconciled on a daily basis.

What is a bank feed?

Your MYOB online accounting software is set up to communicate with your bank so that your bank transactions are fed right into you MYOB data file. It captures the debits and credits from your bank account and drops them into your MYOB file.

Bank feeds help save you valuable time by reducing data entry and assisting with eliminating possible data entry errors.

Once you’ve activated your bank feed you can set up rules. Rules tell your online accounting software that there is a particular type of transaction you want to record each time it sees a particular bank transaction description.

Once you have set up the rule, you never need to record that transaction again. MYOB automatically allocates that transaction – it’s automatically entered, coded and any required description is in the journal memo as per how you have set up your rule. All you need to do is approve the allocation.

Can bank feeds assist with cash flow?

Yes! I have been surprised many times by small business owners who have no idea regarding outstanding invoices owed to them. Many are also unsure how much they owe to their creditors. This is largely due to the fact they didn’t stay on top of their accounts. With bank reconciliations only being updated every few weeks, it’s no wonder they struggled to manage or understand their cash flow.

If your bank transactions are up to date and recorded accurately, not only will you have accurate debtor and creditor balances, you will also have a clear picture on your GST, PAYG and superannuation liabilities.

READ: 10 ways to be king of the cash flow

What is a Cash Flow Statement?

A Cash Flow Statement is a report that is based purely on actual cash inflows and outflows over a period of time. It’s one of the most important reports that you should be looking at on a regular basis.

A Cash Flow Statement differs from a Balance Sheet or Income Statement. Balance Sheets and Income Statements are based on accruals and take into consideration cash that you have not yet received or paid. A Cash Flow Statement only takes into consideration cash that has actually been received and spent.

A Cash Flow Statement will tell you if your business is able to pay for its day-to-day operations and future expansion.

 What goes into a Cash Flow Statement?

A Cash Flow Statement captures the inflows and outflows of money and is made up of three areas:

  1. Operating Activities – The revenue generating activities of your business and the operating expenses of your business. These are things like the cash received from the sale of goods or services and expenses paid such as wages, purchases, rent, taxes etc.
  2. Financing Activities – These are activities that affect the equity of your business such as the selling of shares, capital contributions or proceeds from loans etc.
  3. Investing Activities – These are activities such as buying and selling of assets such as property, plant and equipment.

It’s really important to review your Cash Flow Statement regularly, and it is just as important to prepare a Cash Flow Forecast – especially if you are planning to make a major purchase or expand your business. A Cash Flow Forecast will tell you if you are financially able to afford your plans before you commit to something you may not be able to afford.

When you prepare a Cash Flow Forecast you should always have your Actual Cash Opening Balance as a starting point, and by the time you enter the expected inflows and outflows of the upcoming cash transactions of your business you will then be able to see what your expected Closing Cash Balance will be.

Once you know what that Closing Balance is, you will have a true understanding of how your business is tracking which will give you the confidence to make those important financial decisions.