Can you create a cash flow statement using a budget?

by Lesley F. Katz, CPA | Aug 05, 2016
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It is possible, but it’s important to understand how the cash flow statement differs from the budget before doing so.

In the personal finance world, the profit and loss statement or income statement is referred to as the cash flow statement. The cash flow statement has the income that flows to the consumer and the expenses that flow out of the consumer’s accounts to arrive at a net profit or net loss to their accounts for the period the statement covers.

The difference between the cash flow statement and a budget is that the cash flow statement reflects the actual income and expenses for the period under review. The budget is a projection of how much income you expect to receive and how much the consumer commits to spend in each expense category to reach a desired net profit for a particular period. Often people will use a month for budget projections.
   
While there is a difference between the two, the statements look exactly the same. So if you start with a projected ideal – the budget—then you can periodically gather the actual income and expenses and create the cash flow statement that mirrors the budget. This then lets you compare how you did against your ideal.
 
You can also do the opposite. You can gather the actual income and expense data to create the cash flow statement, and then upon review decide that you want your spending goals to be different than actual in the future – in which case you’d create a budget.
 
The value of these two ways of looking at income and expenses is to enable a means of tracking, in very small increments, if you are making the right choices to enable savings for personal goals.

Answered by: Lesley F. Katz, CPA, is with Leveraging Financial Knowledge LLC in Lower Gwynedd, Pa.

Disclaimer
The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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