Create dedicated GL accounts for non-cash transactions.
In order to correctly forecast cash flow, you must separate cash from non-cash transactions in your GL accounts. When these transactions share the same accounts, it becomes difficult to create a cash flow statement that automatically captures cash movements.
In most models, actuals are pulled into the P&L and balance sheet by mapping GL accounts. The cash flow statement is then derived using the indirect method:
The key distinction:
In many ERPs, cash and non-cash entries are recorded in the same accounts, making it difficult for cash flow statement logic to distinguish between them automatically. Examples of non-cash items are:
Some CoA templates help by splitting out “asset additions” from “depreciation.” But to fully automate the cash flow, this kind of structure needs to exist wherever cash and non-cash are mixed.
In some cases, both sides of a non-cash transaction flow into the cash flow model and cancel each other out, producing a seemingly correct net cash flow, but for the wrong reasons.
Including non-cash items in the cash flow statement becomes a problem when consolidating, eliminating, or forecasting, becaus they create phantom cash effects that are complex to troubleshoot.
Use separate accounts or dimensions in your ERP to distinguish cash and non-cash activity.
Examples:
If needed, you can periodically “clear” or reclass accounts, with manual adjustments handled in Francis.