Monthly cash flow statement in 4 steps
After preparing the monthly balance sheet you may notice that the month's profit does not equal the increase in your bank. The cash flow statement explains the gap: where cash came from and where it went. Prepare it monthly in 4 steps using the indirect method: start with net profit and add back depreciation, adjust for the change in receivables, inventory and suppliers between the start and end of the month, record asset purchases, loan repayments and owner drawings, then reconcile the result to your bank and cash balance.
Example: the caterer's September cash flows
We stay with the same caterer. September net profit was SAR 35,600, including SAR 4,200 of depreciation. During the month the business bought equipment for SAR 12,000, paid the SAR 2,000 loan instalment, and the owner withdrew SAR 6,000. These are the current balances at the start and end of the month:
| Line | 31 August (SAR) | 30 September (SAR) | Effect on cash |
|---|---|---|---|
| Customer receivables | 38,000 | 46,000 | − 8,000 |
| Inventory | 14,000 | 12,000 | + 2,000 |
| Prepaid rent | 45,000 | 30,000 | + 15,000 |
| Suppliers and accrued expenses | 47,400 | 50,400 | + 3,000 |
| Customer deposits | 10,000 | 18,000 | + 8,000 |
Step 1: start with net profit and add back non-cash items
Depreciation is an expense in the income statement, but it did not leave the bank this month; the cash left on the day the asset was bought. So add it back: 35,600 + 4,200 = SAR 39,800.
Step 2: adjust for changes in current items
One rule covers it: an increase in a current asset ties up cash, a decrease releases it. An increase in a current liability keeps cash with you, a decrease means you paid.
- Receivables rose SAR 8,000: you sold but did not collect, so subtract it.
- Inventory fell SAR 2,000, and prepaid rent fell SAR 15,000 because September's rent was paid earlier: add both.
- Suppliers and accruals rose SAR 3,000, and deposits rose SAR 8,000: add both.
Net adjustments are + SAR 20,000, so cash from operations = 39,800 + 20,000 = SAR 59,800.
Step 3: record investing and financing
Anything outside day-to-day operations goes in two separate sections, so that buying equipment or repaying a loan is not mixed up with how the business performed:
| Section | September (SAR) |
|---|---|
| Cash from operations | 59,800 |
| Equipment purchase | − 12,000 |
| Cash from investing | − 12,000 |
| Loan instalment | − 2,000 |
| Owner drawings | − 6,000 |
| Cash from financing | − 8,000 |
| Net change in cash | 39,800 |
Step 4: reconcile to bank and cash
Bank and cash at 31 August SAR 47,200 + net change 39,800 = SAR 87,000, the same balance shown in the balance sheet after the bank reconciliation. Any gap means a line was missed in the comparison or a movement sits in the wrong section, so do not approve the statement until it disappears.
Running it from WhatsApp
Owner (2 October): The bank went up almost 40,000 in September. Shall we buy a 30,000 oven?
System: September cash flow statement: operations SAR 59,800, investing −12,000, financing −8,000, so cash rose SAR 39,800 to 87,000. But 15,000 of that is rent paid before September, and 8,000 is deposits for October banquets not yet served.
Owner: So what did operations really bring in?
System: Without those two items, SAR 36,800. And customer receivables rose SAR 8,000. Shall I remind you about the oven after October's collections?
Owner: Remind me after collections
Note that the rise in the bank was real, but part of it will not repeat next month. More on Arabic accounting from your phone and on running your business from WhatsApp.
Checklist before you approve
- Did you start from the approved net profit after closing the month?
- Did you add back depreciation and every expense that used no cash?
- Did you subtract increases in current assets and add increases in current liabilities?
- Are asset purchases kept out of operations, with the loan and drawings under financing?
- Does opening cash + net change = bank and cash at month-end?