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Accounting Allah shmoop assembling a statement of cash lows Oh

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gnarly assignment One of the harder things you'll do in

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counting beans and dollars Well this concept focuses on you

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as an individual proprietor i e The owner of a

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relatively small company or at least financially small figuring out

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your cash needs So as we think about the dynamics

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of generating cash which at the end of the day

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is what you do for a living is a corporation

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Let's go back to our bike manufacturer example In a

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given month you add up your sales receipts Ten Bike

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sold the Google for five grand twenty bikes to Facebook

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for ten three hundred bikes to individuals who paid with

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cash one hundred fifty big ones fifty bikes to individuals

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who paid on credit in twenty five grand there right

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So total sales One hundred ninety thousand bucks Well did

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you actually put one hundred ninety thousand dollars in cash

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in your bank account No Why Well because fifty bucks

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were sold to individuals who simply signed a piece of

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paper promising to pay you a total of twenty five

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grand in sixty days But it's even more complicated than

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that because you had twenty bucks that had been sold

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to individuals on credit previously who chose this month to

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pay off those bills So let's figure out what the

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actual cash revenues in the door were for this month

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You start with one hundred ninety thousand dollars total sales

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figure and subtract twenty five grand in bike sold on

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credit to give you one hundred sixty five grand in

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direct sales or cash revenues for that period You then

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add to this number the twenty bikes at five hundred

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bucks each or ten thousand dollars in cash that just

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came in from people previously paying off sold bikes So

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now the cash total collected in the month is one

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hundred seventy five thousand dollars So while that's great one

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hundred seventy five grand might seem like a lot of

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money but for better or worse you had a whole

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bunch of bikes which had costs that had to be

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paid for So let's imagine the ideal situation here where

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you keep your inventory amount or volume or expense or

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dollars in exactly flat That is each month you hold

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exactly five hundred units of everything and as soon as

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something has sold You put in an order with your

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suppliers to immediately refill the inventory volumes of frames tyres

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brakes those little basket things on the handlebars All right

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So this month in total you sold three hundred eighty

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bikes The manufacturing of those bikes had to be paid

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for to the tune of two hundred fifty bucks a

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bikes That's what Acosta doing Fancy math I am multiplying

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hundred fifty dollars Times three hundred eighty units You come

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out with a bicycle manufacturing costs of ninety five grand

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Well you collected one hundred seventy five grand in cash

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and you encourage bike equipment costs or costs of goods

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sold of ninety five grand which you just subtract from

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your total cash collected And that gives you a notional

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profit before operating the company of eighty thousand dollars Right

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That was your gross profit But there's a subtle of

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maybe not so subtle difference here which throws all your

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math off You had previously sold bikes on credit for

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which you just collected ten thousand dollars And this month

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you sold fifty bikes on credit so your accounts receivable

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will have changed dramatically In fact it will have gone

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up by the difference of thirty bikes or fifteen thousand

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dollars So all of this math focus is on the

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company as a cash on cash based perspective You It's

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likely that the company has all kinds of other expenses

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both cash and noncash right Like if employees have worked

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there for a while Well obviously they get their salary

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but the company is then probably accruing cash to pay

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out projected bonuses at year end It's also probable that

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there are other assets the company purchased a while ago

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which need to be depreciated like that one year advance

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The company had to pay the lease It's building which

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then slowly declined in value each month And the cash

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that you know went out to lease the building all

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at once the beginning of the year And then it

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slowly declined over time right That was a tough month

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a lot of cash out the door that month Well

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we don't need to get into the nitty and or

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the gritty of what these factors dude owners equity Yet

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the focus here is just about running a little business

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Ideally one of your own One you start that has

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divergent cash needs different cash profits and losses from accounting

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or book based profits and losses Cash flows are different

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from earnings Got it big idea there Well that's the

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reason the cash flow statements has to exist and a

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lot of attention to the balance sheet exists as well

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It matters a lot Just don't give the balance sheet

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too much attention You know you don't want to get 00:04:23.677 --> [endTime] spoiled

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