Inventory, or stock, refers to the goods or commodities held within a business for the purpose of resale or trade to generate profit. Changes in product levels in the business have an effect on the cash flow statement and its overall liquidity.
Therefore, it is important for business owners to understand how to calculate inventory for cash flow statements, as well as to understand how to manage stock effectively. The best way to track and manage this is with the help of an inventory management software in UAE.
Read on to find out exactly how your catalog affects cash flow, and how to present it on your cash flow statement.
Calculating Inventory for Cash Flow Statements
A cash flow statement is an accounting report that shows all the inflows and outflows of cash in the business. There are three major categories defined by the cash flow statement:
- Operating Activities
- Investing Activities
- Financing Activities
Change or movement of inventories are represented under the operating activities in the statement. This means that the changes in stock after every financial period are recorded under the operating activities section.
In order to determine the accurate value of stock-in-hand to include in the cash flow statement, there is a specific calculation.
How to Calculate Closing Inventory for Cash Flow Statements
The formula used to calculate the number of products and units left in the business at the end of the accounting period is as follows:
Opening Stock
+Purchases
-Closing Stock
= Cash flow generated by the change in inventory
Next, you must determine if the inventory increased or decreased. If it is higher than last year, it means it increased, and vice versa. If the inventory increased, the company experienced a cash outflow. If the inventory decreased, the company experienced a cash inflow.
Automatically Calculate Inventory Levels for Cash Flow
Calculating the levels of products in your business can be tricky when done manually, especially when there are huge numbers of units involved. Thankfully, inventory management software provides an easy solution to making this calculating.
A serialized inventory management solution, or ERP software in Dubai, automatically re-adjusts stock levels at the point of sale. At the same time, it tracks all opening and closing levels, as well as purchases throughout the accounting period.
The reporting functionality in our ERP software in Dubai also allows for the automatic generation of cash flow statements for any time period, making it easier than ever to manage your product levels!
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