The purpose of this article is to describe how Konsolidator calculates cash flow in general. The purpose is also to give our input on how to work with cash flow and how to reconcile numbers in cash flow.
We recommend reading the entire article and looking at the cash flow checklist before working on your own cash flow.
This article is divided into separate parts in relation to cash flow.
1. Calculation method and the cycle of consolidations
2. Cash flow account mapping
3. How to work and reconcile cash flow (Step by step)
Calculation method and the cycle of cash flow consolidations
When calculating the cash flow, Konsolidator uses the same calculation method as when calculating the consolidated numbers – the “Step by step” method. This means that Konsolidator creates a cash flow on the entity level in local currencies. Hereafter these numbers are converted to the currency for the nearest parent using the exchange rates in the system. Konsolidator again uses the weighted average when calculating the numbers.
Therefore, the lowest level of consolidated cash flow needs to be prepared before consolidating the next level in the group structure. Consider the need for reporting on the subgroup level when setting up your cash flow.
Please remember that the cycle for cash flow consolidation must follow the cycle for consolidation. It is not possible to calculate a correct cash flow monthly if your cycle for consolidation of actual numbers is quarterly.
Cash flow account mapping
All standard group account in Konsolidator is linked to a default cash flow account. We have created a separate guide in relation to cash flow account mapping. Please read the linked guide - Cash flow account mapping - INDSÆT LINK
How to work and reconcile cash flow (Step by step)
When finalizing your consolidation for a specific period you click on the button “Cash Flow” and click on “+Calculated and post”. Then all system cash flow adjustments and cash flow eliminations are calculated.
Konsolidator calculates and posts the relevant cash flow adjustment. These adjustments are related to profit/loss distribution and are on the entity level.
After the journals are calculated it is possible to download the cash flow report (Consolidated).
Click on the button “Reports” and select “Cash flow report”.
The cash flow report contains one sheet for each of your groups/subgroups in the group structure. Please be aware that the consolidated cash flow statement is presented in the currency of the parent entity within the specific group/subgroup.
The cash flow report also contains an FX sheet for each group that shows the conversion from the local currencies on the entity level to the currency of the parent company within the group/subgroup.
As stated in the Cash flow checklist - INDSÆT LINK
there are some internal contexts that need to be reconciled. One example is the reconciliation of EBIT between the consolidation report and the consolidated cash flow statement. EBIT must be the same in both the consolidation report and the consolidated cash flow statement.
Another example is the reconciliation of depreciation in the consolidated cash flow report. The depreciation in the Profit/loss must reconcile to the depreciation on the balance sheet.
If a mismatch is identified, you can use the cash flow details report to deep dive and identify the mismatch. The cash flow details report shows the calculated cash flow on the entity level in local currency.
In this example, it has been identified that there is a mismatch in the demo customer in the entity Denali. In the Profit/loss there is a total depreciation of 614.380 but in the balance sheet, there is total depreciation of -594.380. Therefore, the consolidation report and maybe also the upload report must be revisited to identify how this mismatch appeared.
Considerations:
It is important to consider your reporting requirements. You need to decide if you are reporting cash flow on the entity level or on a group level. This consideration is relevant when reconciling numbers – but also relevant if you need to do some adjustments/eliminations to the cash flow.