What Is a Statement of Cash Flows?
A statement of cash flows is a financial statement that summarizes the cash and cash equivalents flowing into and out of a business over a period, grouped into operating, investing, and financing activities. It reconciles the change in the cash balance and reveals how a company actually generates and uses cash.
What the statement of cash flows is and why it matters
It's the third core financial statement, and it fills the gap the income statement leaves: profit doesn't equal cash. Because the income statement uses accrual accounting, a company can show profit while cash falls (or vice versa). The statement of cash flows sorts every cash movement into three buckets — operating (day-to-day business), investing (buying or selling assets), and financing (debt and equity) — so readers see whether cash is coming from healthy operations or from borrowing and asset sales. Lenders and investors often trust it more than the income statement because cash is harder to manipulate than accrual profit.
A worked example
A company reports net income of $100,000. On the cash flow statement, operating activities adjust that for non-cash items and working-capital changes: add back $30,000 depreciation, subtract a $20,000 rise in receivables, giving $110,000 operating cash flow. Investing shows −$60,000 for new equipment. Financing shows +$25,000 from a loan, less $15,000 in dividends (+$10,000 net). Net change in cash = $110,000 − $60,000 + $10,000 = $60,000 increase, tying to the rise in the cash balance on the balance sheet.
How firms handle it today
Firms prepare the statement of cash flows at close, typically using the indirect method — starting from net income and adjusting for non-cash items and balance-sheet changes — after the other statements are finalized.
How OCTA Flow relates to the statement of cash flows
OCTA Flow can generate the statement of cash flows as part of the financial-statement step in the close procedure, pulling reconciled figures from the income statement and balance sheet so your team reviews a completed statement.
Related terms
- Cash flow
- Balance sheet
- Income statement
- Net income
- Working capital
FAQ
What are the three sections of the statement of cash flows?
Operating activities, investing activities, and financing activities.
What's the difference between the cash flow statement and the income statement?
The income statement uses accrual accounting to show profit; the cash flow statement shows the actual movement of cash.
What's the difference between the direct and indirect method?
The indirect method starts from net income and adjusts for non-cash items; the direct method lists actual cash receipts and payments. The indirect method is more common.
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