How to Prepare a Personal Cashflow Statement (Income & Expenditure Statement)

A personal cashflow statement is also known as a personal income and expenditure statement.

Personal Cashflow Statement

Do you know where every cent of your income goes to every month? If you do, that's good! If you don't, then a personal cashflow statement will help. An income and expenditure statement, is a summary of cash receipts and payments for a given period, such as a month or a year. This statement provides data on income and spending patterns, which is handy when preparing a spending plan (budget) or generally, when doing financial planning.

These are the simple steps for preparing a personal cashflow statement:

Step 1: Record your Income (Inflows)

The first component of a cashflow statement is the cash received during the time period involved. For most people, the main source of income is money received from job. Other common income sources include wages, salaries and commissions, self employment business income, saving and investment income (interest, dividends, rent), gifts, grants, scholarships and educational loans, amounts received from pension and retirement programs, alimony and child support payments etc.

Step 2: Record Cash Expenditures (Outflows)

Cash payments for living expenses and other items make up the second component of cashflow statement. Cash outflows can be divided into two major categories: fixed expenses and variable expenses. While every individual and households has different cash expenditures, these two (2) main categories can be adapted to most situations.

  • Fixed expenses are payments that do not vary from month to month. Rent or mortgage payments, installment loan payments, Pay TV fees, and Gym monthly membership fees are examples of constant or fixed cash expenditures.
  • Variable expenses are flexible payments that change from month to month. Common examples of variable cash expenditures are food, clothing, utilities (such as electricity and telephone), recreation, medical expenses, gifts, and donations. The use of a checkbook or some other recordkeeping system is necessary for an accurate total of cash expenditures.

Step 3: Determine Net Cash Flow

The difference between income and expenditures can be a positive (surplus) or a negative (deficit) cash flow. A deficit exists if more cash goes out than comes in during a given month. This amount must be made up by withdrawals from savings or by borrowing.

When you have a cash surplus, this amount is available for saving, investing, or paying off debts. A cash flow statement therefore provides the foundation for preparing and implementing a spending, saving, and investment plan.

Relationship Between Cash flow Statement and Balance Sheet

  • Changes in net worth are the result of the relationship between income and expenditures. When expenditure exceeds income, you must draw on savings or borrow (buy on credit). This results in lower assets (savings) or higher liabilities (due to the use of credit).
  • When income exceeds expenditure, putting money into savings or paying off debts will result in a higher net worth.

In general, the relationship between the personal cashflow statement and the balance sheet may be expressed as follows:

Using a budget, preparing a cash flow statement, and developing a balance sheet periodically improve your financial wellbeing with:

  • the budget: assisting in planning spending and saving to achieve financial goals.
  • the cash flow statement: indicating cash received and spent over the past month.
  • the balance sheet: reporting the current financial position.

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Tools to Use

1. Financial Planning Worksheet: Download, print and use. (pdf file)

2. Personal Cashflow Statement Worksheet: Use this worksheet to prepare a personal/household cashflow statement. (zip file)

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