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In This Article
  • Cash Flow & the primary tools used to determine it
  • Overview of the Statement of Cash Flows
  • Overview of a Cash Flow Document
  • Why knowing the difference is crucial for your construction business



Cash flow is one of the most important factors in assessing the health and viability of any company's business activity. Whether you are a small business or a large corporation, proper cash flow management is essential. Knowing how much cash there is, how it's spent, and (most importantly) when it may run out, is vital to owners as they make daily business decisions.

There are two primary tools that aid in the determination of cash flow:

  • The Statement of Cash Flows
  • A Cash Flow Document 

Both are used to track cash inflow and cash outflow within a business, but they serve different purposes and have distinct characteristics.

The statement of cash flows is a financial report that is a legal requirement for public companies. As such, it must also follow specific regulatory guidelines. It follows general accounting standards and formats and is used primarily for external reporting and stakeholder analysis. Though not legally required, private companies can also utilize a statement of cash flows.

cash flow document is an internal management tool that can be used by any company. It can follow any desired format, and is highly customizable according to what your company requires for managing day-to-day operations and business planning.

The statement of cash flows is a formal financial statement document used for reporting what has already occurred in the past, while the cash flow document is a flexible internal tool used for managing and forecasting cash flows both in real time and in the future.


Read More about Financial Statements: Construction Accounting 101 - What Are Financial Statements & Why Do They Matter?



The Statement of CashflowsBook a Free Performance Consultation Now

The statement of cash flows is a financial report summarizing cash inflows and outflows over a past accounting period. Along with the Balance Sheet and Income Statement, this report is one of a company's three primary financial statements. Also called the Cash Flow Statement, it is generally legally required by accounting standards (e.g., GAAP or IFRS) for financial reporting.

The Statement of Cash Flows works in tandem with the Income Statement and Balance Sheet to show how cash moves in and out of a business. The statement of cash flows reconciles the beginning and ending cash balances on the Balance Sheet. It also utilizes Net Income or Net Loss from the Income Statement to determine a starting point for the period in question.

Investors, creditors, and other stakeholders use this financial statement to assess the company's liquidity, financial health, and cash management. It also provides understanding on the uses of cash in evaluating the company's ability to generate income from operations.

The typical structure of a cash flow statement includes the following three sections:

  • Operating ActivitiesCash flows from primary business operations
  • Investing ActivitiesCash flows from investing and the purchase & sale of long-term assets
  • Financing Activities: Cash flows from transactions with the company's owners & creditors
Cash Flow Documents

A cash flow document (or cash flow spreadsheet) provides a more detailed and flexible tool for managing a company's cash flows. Companies commonly use Cash Flow Documents to forecast and gauge what will happen to their cash position in the future.

They are important tools for internal planning, budgeting, and cash management over non-specific periods. A cash flow spreadsheet may follow any number of formats and include a user’s choice of data.

Some of the most common areas for cash flow document tracking include:

  • Accounts Receivable: When will your client pay & how much is expected?
  • Accounts Payable: When will you have to pay subcontractors or vendors & how much is due?
  • Payroll: When is your weekly, bi-monthly, or monthly payroll due? How much is being paid to employees in each pay period?
  • Overhead: When do you need to pay your insurance, rent, bills, or other office expenses? These will affect the amount of cash in your operating account
  • Projections: What may occur when unexpected scenarios arise? Bills can be submitted late, payments get delayed, extraordinary expenses occur, etc.

A cash flow document is used by management to ensure sufficient liquidity for operations, plan for future cash needs, and make informed financial decisions. It can also be updated regularly to reflect the latest cash flow information and forecasts in real time.

As an internal tool, it is highly customizable and can be developed according to user preferences based on the company's specific needs. A cash flow document can include daily, weekly, or monthly cash flow tracking. They can also track multiple scenarios across several weeks or months to show different potential outcomes.

Why It Pays to Know the Difference

Greg Blog stock 3 - construction graphic-1Understanding the difference between a statement of cash flows and a cash flow document is essential for optimizing financial analysis and decision-making in your business. While both reports provide insights into an organization's cash flow activities, they serve different purposes.

The statement of cash flows is a formal financial statement that outlines cash inflows and outflows categorized into operating, investing, and financing activities. It offers a comprehensive view of a company's financial health at a given point in the past. An internal cash flow document is a more generalized document which is catered to meet each business's unique needs. It tracks cash movements, with or without specific categories like financing, operating, and investing. 

By understanding the difference between these two financial tools, companies can use them to gain a deeper comprehension of past financial performance or future long-term sustainability.


Check out more of our blogs about Construction Project Financials

Learn more about Ascent's Fractional CFO services to optimize your company's financial performance


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Gregory Gorman

Greg has 20+ years of financial, operational, and leadership experience in various professional sectors with a focus on construction, development, and construction management.

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