statement but don ’ t bring in cash immediately . The cash flow statement corrects the “ income ” that was reported but not yet received in cash , ensuring a more accurate reflection of cash availability . In practice : l If AR increases during a period , it means the spa provided services or products but hasn ’ t collected payment yet , which reduces actual cash on hand . l If AR decreases , it means customers have paid their outstanding invoices , increasing cash for the business .
DEPRECIATION The gradual reduction in value of the spa ’ s long-term assets like spa equipment , furniture or machinery due to wear and tear , age or obsolescence is not a cash expense : You don ’ t physically pay for depreciation each month . Instead , it is recorded on the income statement to reflect the decreasing value of the assets the spa uses to operate . For example , a $ 30,000 laser machine depreciating over five years adds a $ 6,000 annual expense without affecting cash flow .
ACCOUNTS PAYABLE Accounts payable ( AP ) reflects short-term liabilities for unpaid supplier invoices — money the spa owes to suppliers , vendors or service providers for products or
From treatments to transactions : Understanding cash flow is important to determine whether to invest in new equipment , expand services or hire additional staff , all while ensuring the business remains financially healthy and sustainable . services received but not yet paid . For instance , if the spa orders lotions and creams from a supplier with payment due in 30 days , the amount owed is recorded as accounts payable until the invoice is paid . While it does not immediately affect cash flow , it ’ s important to manage AP carefully to avoid future cash flow issues , as failing to pay bills on time can damage relationships with suppliers or lead to penalties .
BENEFITS OF THE CASH FLOW STATEMENT l Effective cash management : The statement helps spa owners anticipate periods of cash shortages or surpluses , allowing them to adjust their budgets , plan for large purchases or schedule maintenance to avoid cash flow disruptions . For instance , during off-peak seasons , conserving cash or running promotions can mitigate reduced cash inflows . l Informed decisions : Insights from this report guide decisions such as expanding the spa , purchasing new equipment or hiring more staff . It also helps assess whether the business is financially ready to take on additional loans or pay dividends to investors without compromising liquidity . n
CITATIONS : Besley , S ., & E . F . Brigham ( 2000 ). Essentials of Managerial Finance . Kieso , D . E ., J . J . Weygandt , and T . D . Warfield ( 2019 ). Intermediate Accounting .
IBANESSA SOTO HOGAN is a business and financial strategist for spa and wellness industry companies . She is the founder and owner of Masterpiece Accounting Services and an associate professor of tax and accounting at Monroe College . She holds a Bachelor of Public Accounting and an MBA in Accounting , and is a licensed tax professional / enrolled agent ( EA ) and a certified professional business advisor ( CPBA ).
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