FIFO stand for First In; First Out for and LIFO stand for Last in, FIrst Out.
The two are inventory process for handling material in storage before being sold.
For FIFO the material that is bought first for inventory is the first to be used or sold.
For LIFO the last material kept in inventory will be used or sold before material recently bought for inventory.
Direct Cash Flow statement uses the operating activities to project how much money a company will have at the end of certain period. Most cash flow statement are projected monthly, but can also be used on weekly or quarterly basis.
How direct cash flow statement work start with the beginning balance in the bank account. You record the money you received during the period in the cash in section. After you input your expenses in the cash paid out section.
The cash in and cash paid out is placed in the cash flow summary to show the forecast for how much money you will have later in the year.
This help to know if you will have money to keep running your business. The forecast show if your able to pay bills and meet payroll.
If you cash flow show it going negative in the ending balance. This is your sign that you won’t be able to pay bill and meet payroll. You need to bring in more money or cut cost to get yourself out of the negative in the ending balance section.
The numbers you use to forecast the money that is coming in and out later in the year comes from your budget that you set for the fiscal year. When your books are closed for the month. You will put in those numbers in current month to update the cash flow statement.
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