What is a Statement of Cash Flows?
The Statement of Cash Flows (SCF) is one of the core financial statements, alongside the Profit and Loss Statement (Income Statement) and the Balance Sheet.
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Definition: It shows how cash enters and leaves the business over a period of time, broken down into operating, investing, and financing activities.
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Why it’s used:
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To assess the business’s ability to generate cash (critical for laundromats, since cash and coins are a major part of operations).
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To understand how profits on paper (from the P&L) differ from actual available cash.
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To highlight whether cash is coming from daily operations, asset purchases (e.g., new washers/dryers), or financing (loans/owner investments).
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In short, the SCF translates accounting profits and changes in assets/liabilities into real cash movement.
How the Three Statements Connect
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Profit and Loss Statement (P&L)
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Shows revenues, expenses, and net income (profit or loss).
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Example for a laundromat: washer/dryer income, vending income, rent, utilities, maintenance, supplies, and net profit.
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Balance Sheet
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Snapshot of assets (cash, machines, accounts receivable, etc.), liabilities (loans, accounts payable), and owner’s equity at a point in time.
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It shows what the laundromat owns and owes.
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Statement of Cash Flows
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Starts with net income (from P&L).
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Adjusts for non-cash items (depreciation on washers/dryers, amortization).
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Incorporates changes in working capital (from the Balance Sheet: accounts receivable, inventory of laundry supplies, accounts payable).
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Adds/subtracts investing and financing cash flows (buying/selling machines, loan payments, owner contributions).
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Step-by-Step: Building a Statement of Cash Flows for a Laundromat
1. Start with Net Income (from the P&L)
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Example: $50,000 net income for the year.
2. Add Back Non-Cash Expenses
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Depreciation is big in laundromats (washers/dryers, water heaters).
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Suppose depreciation = $15,000.
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Adjusted cash flow = $65,000.
3. Adjust for Changes in Working Capital (from Balance Sheet)
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Accounts Receivable: If receivables increased by $2,000, it means you collected less cash → subtract $2,000.
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Inventory: If detergent stock increased by $500, that’s cash tied up → subtract $500.
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Accounts Payable: If payables increased by $1,000, that means you delayed paying vendors → add $1,000.
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Net effect: –$1,500.
4. Operating Cash Flow
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$65,000 – $1,500 = $63,500.
5. Add Investing Activities (Balance Sheet)
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Purchase of new dryers: –$20,000.
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Sold an old washer: +$2,000.
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Net investing = –$18,000.
6. Add Financing Activities (Balance Sheet)
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Loan proceeds: +$10,000.
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Loan repayment: –$8,000.
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Owner’s dividend: –$5,000.
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Net financing = –$3,000.
7. Net Cash Flow
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$63,500 (operations) – $18,000 (investing) – $3,000 (financing) = $42,500 increase in cash.
8. Reconcile with Cash on Balance Sheet
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Beginning cash balance (Jan 1): $20,000.
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Net increase: +$42,500.
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Ending cash balance (Dec 31): $62,500 (should tie to Balance Sheet).
Why It Matters for a Laundromat Business
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Cash-Heavy Industry: Laundromats rely on steady coin/credit flow. The SCF highlights whether the business is truly generating cash from operations or just “showing” profit due to accounting adjustments.
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Capital Intensive: Machines are expensive and depreciate fast. The SCF shows how much cash is being reinvested into equipment versus withdrawn by owners.
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Debt Monitoring: Many laundromats are financed with SBA loans or equipment loans. The SCF helps track repayment ability.
✅ In summary:
The Profit and Loss Statement gives you net income, the Balance Sheet shows changes in assets/liabilities, and the Statement of Cash Flows combines them to reveal actual cash movement. For a laundromat, this is crucial to ensure daily operations remain solvent, equipment is maintained, and loans can be serviced.