What is a cash flow statement?
A cash flow statement is the financial statement that shows how cash moved in and out of a business over a period. It splits cash flows into operating activities, from day-to-day trading, investing activities, such as buying equipment, and financing activities, such as loans, share issues and dividends, and reconciles opening cash to closing cash.
Also calledstatement of cash flows
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- Sections
- Operating, investing, financing
- Standards
- IAS 7 (IFRS), ASC 230 (US GAAP)
- Common method
- Indirect, starting from profit
How a cash flow statement works
IAS 7 under IFRS, and ASC 230 under US GAAP, set the three categories. Operating cash flow can be shown by the direct method, listing gross receipts from customers and payments to suppliers and staff, or by the indirect method, which starts from profit and adjusts for non-cash items such as depreciation and for changes in receivables, payables and inventory. Most companies use the indirect method. Investing transactions that do not involve cash, such as acquiring an asset through a lease, are left out of the statement and disclosed separately. Because it reconciles profit to cash, the statement shows whether a profitable business is turning that profit into cash. It is a historical record; a cash flow forecast looks forward.
Common questions
What is the difference between the direct and indirect method?+
The direct method lists actual cash receipts and payments by type. The indirect method starts with profit and adjusts it for non-cash items and working capital movements. Both arrive at the same operating cash flow.
What is the difference between a cash flow statement and a cash flow forecast?+
The statement reports what already happened in a past period and is part of the financial statements. A forecast projects future receipts and payments to manage liquidity.
Why can profit and operating cash flow differ?+
Profit includes non-cash items such as depreciation, and sales or costs recorded before cash moves. Rising receivables or inventory absorb cash, so operating cash flow can fall below profit.
Software that produces the cash flow statement
NetSuiteCloud ERP for mid-market companies outgrowing basic accounting.Profile →
Sage IntacctMulti-entity cloud financials with dimensional reporting.Profile →
XeroCloud accounting for small businesses with a large app ecosystem.Profile →
Intuit QuickBooksSmall business accounting covering books, invoicing and payroll.Profile →Part of Accountio’s accounting technology coverage · Glossary
