Massive Income

The Cash-Adjusted Income Statement

The process of creating the cash-flow statement starts at the top of the income statement with the accrual-based sales number as the first step toward getting the actual cash from sales figure, as in the example above. This cashadjusted income statement is the most logical form for a cashflow statement. It’s cash-adjusted in the sense that we always
presume that an increase in an asset or a decrease in a liability or net-worth account represents cash flowing out, and vice versa. Let’s examine that plus-and-minus logic a bit more closely. As we do, look at the Uniform Credit Analysis® (UCA) cash-flow worksheet on pages 52 and 53. This format is recommended by the Risk Management Association, the primary trade group for commercial bankers. Bankers succeed in business largely by getting back the money they lent, so their interest in cash flow is intense. To help ensure success, they have standardized this interrelating of balance sheet and associated income-statement line items to create what I think is the most useful of the available cash-flow-statement formats.