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You are here: Home » Latest News » Cash flow statements – How to avoid errors that damage your business

Cash flow statements – How to avoid errors that damage your business


A cash flow statement provides data about all cash inflows a company receives from its operations and investments.

It tells you how much cash is entering and leaving your business in any given period.

Along with balance sheets and income statements, it is vital for managing your small business accounting and making sure you have enough cash to keep operating.

These important statements deliver accuracy because they track the cash made by the business in three main ways – through operations, investment, and financing.

It is a key part of understanding your business’s financial health, so much so that it was listed as third in the Financial Reporting Council’s (FRC) list of most frequently raised areas in their 2020–21 Corporate Reporting Review.

Transparency and integrity

The FRC, which regulates auditors, accountants and actuaries, and promotes transparency and integrity in business, found cash flow statements with items incorrectly classified.

It said in its Annual Review of Corporate Reporting for 2020/21: “We continue to be concerned about the number of queries we raise in relation to compliance with the requirements of IAS 7 ‘Statement of Cash Flows’.

“As in prior years, many of the cash flow statement errors described in sections 3.1.3 and 6.3 were identified through critically analysing the line items appearing on the face of the statement. Companies should increase their focus on cash flow statements as part of their pre-issuance reviews.”

To avoid errors, and to emphasise the importance of people taking personal responsibility for the stewardship of cash flow, sufficient time and resources should be allocated to prepare and review them.

Business leaders should take responsibility for cash management if there is a risk of business failure and avoid errors when reporting, certain guidelines should be followed, such as:

  • Regular communication with those in charge of cash movements
  • Strict controls over cash flow reporting
  • Making sure responsibilities, reporting lines and staff cover for all cash-related matters are clearly understood
  • Enhancing forecasting effectiveness to get a clearer idea of cash flow in real-time
  • Preparing easy to understand cash flow reports to support critical business decisions and funding
  • Increasing frequency of reporting
  • Preserving underlying data in as much detail as possible.

The principles outlined should apply to all sizes or types of business. Cash flow is the lifeblood of any business and the monitoring and maintenance of it should not be underestimated.

Link: Cash flow statements – avoid common pitfalls

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