Cash Flow Statement: Definition, Strategies & Examples (2024)

FAQs

Cash Flow Statement: Definition, Strategies & Examples? ›

A cash flow statement summarizes the amount of cash and cash equivalents entering and leaving a company. The CFS highlights a company's cash management, including how well it generates cash. This financial statement complements the balance sheet and the income statement.

A cash flow statement tells you how much cash is entering and leaving your business in a given period. Along with balance sheets and income statements, it's one of the three most important financial statements for managing your small business accounting and making sure you have enough cash to keep operating.

Direct method – Operating cash flows are presented as a list of ingoing and outgoing cash flows. Essentially, the direct method subtracts the money you spend from the money you receive. Indirect method – The indirect method presents operating cash flows as a reconciliation from profit to cash flow.

The cash flow statement is broken down into three categories: operating activities, investment activities, and financing activities.

Examples of operating cash flows include sales of goods and services, salary payments, rent payments, and income tax payments.

How to interpret a cash flow statement? ›

A cash flow statement provides data regarding all cash inflows that a company receives from its ongoing operations and external investment sources. The cash flow statement includes cash made by the business through operations, investment, and financing—the sum of which is called net cash flow.

Many accountants prefer the indirect method because it is simple to prepare the cash flow statement using information from the other two common financial statements, the income statement and balance sheet.

1. An enterprise should prepare a cash flow statement and should present it for each period for which financial statements are presented. 2. Users of an enterprise's financial statements are interested in how the enterprise generates and uses cash and cash equivalents.

Regardless of whether the direct or the indirect method is used, the operating section of the cash flow statement ends with net cash provided (used) by operating activities. This is the most important line item on the cash flow statement.

A cash flow statement is a financial statement that shows how cash entered and exited a company during an accounting period. Cash coming in and out of a business is referred to as cash flows, and accountants use these statements to record, track, and report these transactions.

A basic example of cash flow could be a business that generates income from customer sales and pays employees their salaries and production expenses in order to produce the products being sold. The customer sales, or revenue, would be the cash inflow, while the production costs and salaries would be the cash outflow.

A cash flow statement is an important tool used to manage finances by tracking the cash flow for an organization. This statement is one of the three key reports (with the income statement and the balance sheet) that help in determining a company's performance.

Examples of the direct method of cash flows from operating activities include: Salaries paid out to employees. Cash paid to vendors and suppliers. Cash collected from customers.