Outflows on the Cash Flow Statement

3.    CASH OUTFLOWS

Cash outflows represent the cash leaving a company for payment on bills, for equipment purchases, for withdraws, or for paying dividends. More importantly, however, cash outflows predict when (which month) the money will leave the company. Examples of cash outflows include, cash for advertising, rent, utilities, business registration, telephone, bank & service charges, wages & salaries, employer costs, correspondence materials, office supplies, taxes, owner's cash drawings, purchases of equipment, dividends paid to shareholders, and the list goes on and on. The general rule of thumb is that all expenses appearing on the income statement (except for depreciation expenses), office equipment purchases, taxes, drawings by owners, and dividends paid to shareholders are all considered cash outflows. Below illustrates the forecasted cash outflows for Red Deere Electronics.

CASH OUTFLOWS: JAN. FEB. MAR. APR. MAY JUNE TOTAL
For Finished Product Purchases $ 0 $8,000 $7,000 $4,000 $2,500 $3,000 $24,500
For Promotions $9,000 $5,000 $6,000 $8,000 $5,000 $4,000 $37,000
For Office Salaries Expense $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $ 9,000
For Employer Costs (10% of Salary) $ 150 $ 150 $ 150 $ 150 $ 150 $ 150 $ 900
For Office Supplies $ 500 $ 0 $ 500 $ 0 $ 500 $ 0 $ 1,500
For Business Cards & Correspondence $ 200 $ 0 $ 0 $ 0 $ 0 $ 0 $ 200
For Telephone $ 200 $ 150 $ 150 $ 150 $ 150 $ 150 $ 950
For Business Registration & Fees $1,000 $ 0 $ 0 $ 0 $ 0 $ 0 $ 1,000
For Rent $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $ 6,000
For Utilities $ 300 $ 300 $ 300 $ 300 $ 300 $ 300 $ 1,800
For Credit Card Service $ 650 $ 400 $ 900 $ 900 $ 850 $ 700 $ 4,400
For Bank Charges $ 50 $ 50 $ 50 $ 50 $ 50 $ 50 $ 300
For Miscellaneous $ 200 $ 200 $ 200 $ 200 $ 200 $ 200 $ 1,200
For Income Taxes $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
For Withdraws $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $ 9,000
For Equipment Purchased $8,500 $ 0 $ 0 $ 0 $ 0 $ 0 $ 8,500
TOTAL CASH OUTFLOWS (B) $24,750 $18,250 $19,250 $17,750 $13,700 $12,550 $106,250

As you can see, Red Deere Electronics anticipates $24,750 cash will be needed in January for paying its bills, for equipment purchases, and for owner withdraws. In February, $18,250 is expected to "leave" the company, and so on.. Note: deprecation expenses are NEVER considered a cash outflow. Moreover, cash does not leave the company to pay depreciation - it is a non-cash expense.

Categories: Financial