How to Prepare a Statement of Cash Flows

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on February 22, 2023

In this article, we prepare a cash flow statement for a sole trader's business. Compared to a limited company, preparing a cash flow statement for a sole trader is significantly easier.

Example

John Bros. started a business on 1 January 2017 with cash of $250,000. They purchased furniture for cash amounting to $35,000. They submitted the following information on 31 December 2017:

  • Purchased merchandise for $85,000 of which $75,000 was paid during the year
  • Salaries amounting to $72,000 of which $6,000 was unpaid at the end of the year
  • Total sales of $245,000, including $35,000 receivables at year-end
  • Rent paid for shop amounting to $60,000
  • Commission received totaling $9,000

Required: Prepare a cash flow statement for John Bros. for 2017.

Solution

Example Statement of Cash Flows For a Sole Trader

Explanatory note on the use of brackets: In accounting, it is customary to show a figure in brackets if it is a negative figure (i.e., preceded by a minus sign).

This figure will be deducted from the other figures to arrive at the total of the column. Brackets used in this way appear frequently in cash flow statements.

For Cashflow statements to be useful, you must be able to understand each section of it.

This article will teach you how to understand and analyze cash flow statements: How to Read and Interpret a Cash Flow Statement

How to Prepare a Statement of Cash Flows FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.