Now that we have built the Operational Chart of Account we can add the Cash Flow rollup. Apliqo FPM uses an indirect method to derive the Cash Flow for the company. This method is popular because the information needed is readily available from the Profit and Loss statement and Balance Sheet. The indirect method adjusts net income for changes in balance sheet accounts to calculate the cash from operating activities.

1. Start with Net Income: The statement begins with the net income from the income statement.

2. Adjust for Non-Cash Items: Add back non-cash expenses such as depreciation, amortization, and losses, and subtract gains. These adjustments account for items that affected net income but did not involve actual cash transactions.

3. Adjust for Changes in Working Capital: Adjust for changes in current assets and liabilities. For example:

   • Increase in Accounts Receivable: Subtract from net income because it represents sales made on credit, no cash received. Decrease in Account Receivable is a net increase in cash as the account was paid by third parties.

   • Decrease in Inventory: Add to net income because it indicates inventory was sold, generating cash. An increase in inventories indicates a reduction of in cash.

   • Increase in Accounts Payable: Add to net income because it represents expenses incurred but not yet paid, conserving cash.

4. Calculate Cash Flow from Operating Activities: After making these adjustments, you arrive at the net cash provided by operating activities.

Next you need to include changes Assets that affect Cash Flow from Investment Activities. You need to think about how changes in these accounts affect cash in order to identify what way income needs to be adjusted. When an asset increases during the year, cash must have been used to purchase the new asset. Thus, a net increase in an asset account actually decreased cash, so we need to subtract this increase from the net income. The opposite is true about decreases. If an asset account decreases, we will need to add this amount back into the income. Here's a general rule of thumb when preparing an indirect cash flow statement:

Final you need to include changes to Cash Flow from Financing Activities. If you weren't confused by the assets part, you might be for the liabilities section. Since liabilities have a credit balance instead of a debit balance like asset accounts, the liabilities section works the opposite of the assets section. In other words, an increase in a liability needs to be added back into income. This makes sense. Take a change in a loan account for example. If the loan is increased, it means we borrowed more cash for the business. Thus, this amount should be added back. Here's a basic tip that you can use for all liability accounts:

Adding the Cash Flow rollup to the Operational Chart of Account

Here is the to be uploaded to Chart of Accounts Automation Rollups. Please follow the walk through below.

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Training: Manually Maintaining the Operational Chart of Accounts