Cash flow statement: What is it and examples

The financing activities section generally shows inflows and outflows to or from investors and lenders. If a company issued stock or bonds during the period, the proceeds would show up as an inflow. If the company bought back stock or had bonds mature during the period, the payments would show up as an outflow. Once cash flows generated from the three main types of business activities are accounted for, you can determine the ending balance of cash and cash equivalents at the close of the reporting period. Profitable companies can fail to adequately manage cash flow, which is why the statement is so important for prospective investors and business analysts. Let’s consider a company that sells a product and extends credit for the sale to its customer.

What are the types of cash flow?

This causes a disconnect between net income and actual cash flow because not all transactions in net income on the income statement involve actual cash items. Therefore, certain items must be reevaluated when calculating cash flow from operations. If you’re using the direct method, it’s important to accurately identify cash inflows and outflows. For example, outstanding invoices in your accounts payable (AP) or accounts receivable (AR) don’t count towards your cash flow because you haven’t actually sent or received that money yet. A cash flow statement template is a valuable tool for anyone who needs to track and manage cash inflows and outflows systematically.

Cash Flow from Investing Activities

Matt is a college student who enjoys buying and selling merchandise using the Internet. On January 2, 2024, he decided to turn his hobby into a business called “Good Deal Co.” Each month the Good Deal Co. had one or two transactions. Matt wants to prepare an income statement, balance sheet, and a statement of cash flows for the current month and for the year-to-date period. A cash flow statement is a financial statement that shows the cash cash flow going in and out of a business over a set period.

Which Kinds of Cash Flows Show Up in Operations?

Cash flow is the money that is moving (flowing) in and out of your business in a given period (such as a month).
The reason is the company is not paying out cash for the items it is removing from inventory.
In this article, we’ll show you how the CFS is structured and how you can use it when analyzing a company.
Which measures should be implemented first depends on the individual situation – but each one brings more financial flexibility.
It tells how much money is flowing in from business activities, as well as from a company's investments.
If the total unpaid purchases are greater than the total sales due, you'll need to spend more cash than you receive in the next month, indicating a potential cash-flow problem.

Cash flow statements provide valuable insights into a company’s finances. Moreover, the purposes of these two metrics are significantly different. On the one hand, profits are essential for attaining business goals. Money-flow on the other hand helps smooth operations without capital crunch in the short term—a measure of liquidity.

For these reasons, the amount of the company’s accrual net income must be adjusted downward. Again, the reported (800) is the adjustment to the net income amount because of the increase in accounts receivable. Financial analysts will review closely the first section of the cash flow statement, cash flows from operating activities. Part of the review consists of comparing this section’s total (described as net cash provided by operating activities) to the company’s net income. This is done to see whether the revenues, expenses, and net income reported on the income statement are consistent with the change in the company’s cash balance. Cash flows are reported on a cash flow statement, which is a standard financial statement that shows a company's cash sources and use over a specified period.

When someone refers to CF, they could mean any of the types listed below, so be sure to clarify which cash flow term is being used.
Business owners, managers, and company stakeholders use cash flow statements to better understand their companies’ value and overall health and guide financial decision-making.
Using the cash flow statement example above, here’s a more detailed look at what each section does, and what it means for your business.
The example includes all three of the key sections as well as the ending cash balance that will show up on the balance sheet.
Moreover, the purposes of these two metrics are significantly different.

If Example Corporation issues additional shares of its common stock, the amount received will be reported as a positive amount. Lastly, the SCF provides the cash amounts needed in some financial models. Learn the fundamentals of small business accounting, and set your financials up for success. If we only looked at our net income, we might believe we had $60,000 cash on hand. In that case, we wouldn’t truly know what we had to work with—and we’d run the risk of overspending, budgeting incorrectly, or misrepresenting our liquidity to loan officers or business partners. Under Cash Flow from Investing Activities, we reverse those investments, removing the cash on hand.

Remember the four rules for converting information from an income statement to a cash flow statement? Notes payable is recorded as a $7,500 liability on the balance sheet. Since we received proceeds from the loan, we record it as a $7,500 increase to cash on hand. Now that we’ve got a sense of what a statement of cash flows does and, broadly, how it’s created, let’s check out an example. With the indirect method, you look at the transactions recorded on your income statement, then reverse some of them in order to see your working capital. You’re selectively backtracking your income statement in order to eliminate transactions that don’t show the movement of cash.