What is a Cash Flow Statement? | Example of Cash Flow Statement - Zoho Books (2024)

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What is a cash flow statement?

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.It is usually helpful for making cash forecast to enable short term planning.

The cash flow statement shows the source of cash and helps you monitor incoming and outgoing money.Incoming cash for a business comes from operating activities, investing activities and financial activities. The statement also informs about cash outflows, expenses paid for business activities and investment at a given point in time.The information that you get from the cash flow statement is beneficial for the management to take informed decisions for regulating business operations.

Companies generally aim for a positive cash flow for their business operations without which the company may have to borrow money to keep the business going.

Importance of a cash flow statement

Fora business to be successful,it should always have sufficient cash. Thisenables it to pay backbank loans, buycommodities, or investto get profitable returns. A business isdeclared bankruptif itdoesn’t have enough cash to pay itsdebts. Here are some of the benefits of a cash flow statement:

  • Gives details about spending: A cash flow statement gives a clear understanding of the principal payments that the company makes to its creditors. It also shows transactions which are recorded in cash and not reflected in the other financial statements. These include purchases of items for inventory, extending credit to customers, and buying capital equipment.

  • Helps maintain optimum cash balance: A cash flow statement helps in maintaining the optimum level of cashon hand. It is important for the company to determine iftoo much of its cash is lying idle, or if there’s a shortage or excess of funds.Ifthere isexcess cash lying idle, then the business can use it to investin shares or buy inventory. If there is a shortage of funds, the company can look for sources from where they can borrow funds to keep the business going.

  • Helps you focus on generating cash: Profit plays a key role in the growth of a company by generating cash. But there are severalother ways to generate cash.For instance, whena company finds a way to payless for equipment,it isactually generating cash. Everytimeit collects receivables fromits customers quicker thanusual,it isgainingcash.

  • Useful for short-term planning: A cash flow statement is an important tool for controlling cash flow. A successful business must always have sufficient liquid cash to fulfill short-term obligations like upcoming payments.A financial manager can analyze incoming and outgoing cash from past transactions to make crucial decisions. Some situations where decisions have to be made based on the cash flow include forseeing cash deficit to pay off debts or establishing a base to request for credit from banks.

Format of a cash flow statement

There are three sections in a cash flow statement: operating activities, investments, and financial activities.

Operating activities: Operating activities are those cash flow activities that either generate revenue or record the money spent on producing a product or service. Operational business activities include inventory transactions, interest payments, tax payments, wages to employees, and payments for rent. Any other form of cash flow, such as investments, debts, and dividends are not included in this section.

The operations section on the cash flow statement begins with recording net earnings, whichare obtained from the net income field on thecompany’sincome statement.This gives an estimate of the company’s profitability.After this, it lists non-cash items involving operational activities and convert them into cash items. A business’ cash flow statement should show adequate positive cash flow for its operational activities. If it doesn’t, the business may find it difficult to manage its daily business operations.

Investment activities:The second section on the cash flow statement records the gains and losses caused due to investmentin assets like property, plant, or equipment (PPE)thus reflecting overall change in the cash position for a company. When analysts want to know the company’s investment on PPE, they check for changes on a cash flow statement.

Capital expenditure (CapEx) is another important line item under investment activities. CapEx is the money which a business invests on fixed assets like buildings, vehicles or land. An increase in CapEx means the company is investing on future operations. However, it also shows that there is a decrease in company cash flow.

Sometimes a company may experience negative cash flow due to heavy investment expenditure, but this is not alwaysan indicator of poor performance, because it may be leading tohigh capital growth.

Financial activities: The third section on the cash flow statementrecords the cash flow between the company and its owners and creditors. Financial activitiesincludetransactions involving debt, equity, and dividends. In these transactions, incoming cash is recorded when capital is raised(such as from investors or banks),and outgoing cash is recorded when dividends are paid.

Cash flow statement example

Following is an example ofwhat acash flow statement looks like. This is the cash flow statement forXYZ company at the end of Financial Year (FY)2018.

What is a Cash Flow Statement? | Example of Cash Flow Statement - Zoho Books (1)

From the above example, we can see that the computed cash flow for FY 2018 was $ 2,528,000. Let’s look at what each section is showing.

Operating activities: Inthis section,we canseeincoming cash valuesrecorded as positive while outgoing cash values are negative and are usually represented in brackets. When you subtract the outgoing value from the incoming value, you arrive at the netcash flow for operating activities.In this example, we can see that the net value for operating activitiesis positive, which is a good sign for investors.

Investing activities: Since the core operating activities are generating income, the business can now investin equipment.Because the company is investing $500,000in equipment, itscash flow in this section is negative.This negative value isn’t a bad thing—you can say thatthe company’s capacity to investinPPE reflects its growth.

Financial activities: After investing in equipment, the company still has $10,000 to pay off its debts—in this case, notes payable. Besides this the company will still have plentiful to cover its loans in future.

Net cash flow: When you add all three net values from the three sections on the cash flow statement, you arrive at the net cash flow value, which in this case is $ 2,528,000. This shows that the company has enough cash to continue operating.

What is negative cash flow?

Negative cash flow is a situation where a company has more outgoing cash than incoming cash. The money thatthe company is earning from sales may not be enough to coverits expenses, andit may have to borrow from external sources to cover the differences.

Following is a small example showing negative cash flow. Here you can see that the business paid moreinexpensesthan the amount of income it brought in.

What is a Cash Flow Statement? | Example of Cash Flow Statement - Zoho Books (2)

A negative cash flow doesn’t always imply that the company’s financial performance was bad. Sometimes the company’sincomingprofitmight be good, yet there is little money in the bank to pay offdebts.Negative cash flow is common for small businesses, but it is unhealthy if itgoes on for a long period.


A cash flow statement is a valuable document for a company, as itshows whether the business has enough liquid cash to pay its dues and investin assets.You cannot interpret a company’s performancejustbylooking at the cash flow statement.You may need to analyse long term trends after referring to balance sheet and income statement in order to get a somewhat clear picture of how the company isfaring.

What is a Cash Flow Statement? | Example of Cash Flow Statement - Zoho Books (2024)


What are examples of cash flow statement? ›

Example of a cash flow statement

Red dollar amounts decrease cash. For instance, when we see ($30,000) next to “Increase in inventory,” it means inventory increased by $30,000 on the balance sheet. We bought $30,000 worth of inventory, so our cash balance decreased by that amount. Black dollar amounts increase cash.

What is cash flow in Zoho Books? ›

Cash flow refers to the flow of money and money equivalents (real or virtual) in a business. It helps a business owner understand how money comes in or goes out of the company and how it is spent over a period.

What are the cash flows in the statement of cash flows? ›

The main components of the cash flow statement are: Cash flow from operating activities. Cash flow from investing activities. Cash flow from financing activities.

How do you explain a 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.

What are the three types of cash flow statements? ›

The three categories of cash flows are operating activities, investing activities, and financing activities. Operating activities include cash activities related to net income. Investing activities include cash activities related to noncurrent assets.

How does flow work in Zoho? ›

With Zoho Flow, you no longer need to learn code to integrate. A flow is the combination of a trigger and action(s). The trigger kickstarts the flow, and the actions are tasks executed by the flow. The trigger can be a data update or a scheduled point in time.

What is workflow rules in Zoho Books? ›

Workflow Rules , are a set of actions (alerts, tasks and field updates) that are executed when certain specified conditions are met. These rules automate the process of sending email alerts, assigning tasks and updating certain fields of a record when a rule is triggered.

How to calculate cash flow statement? ›

Summary. Net Cash Flow = Total Cash Inflows – Total Cash Outflows.

What is the difference between a balance sheet and a cash flow statement? ›

A balance sheet shows what a company owns in the form of assets and what it owes in the form of liabilities. A balance sheet also shows the amount of money invested by shareholders listed under shareholders' equity. The cash flow statement shows the cash inflows and outflows for a company during a period.

What is the monthly cash flow statement? ›

The primary aim of the monthly cash flow report is to present an overview of the financial activity experienced throughout the month. Organizations rely on monthly cash flow statements to closely monitor cash inflows and outflows. Typical users of the cash flow report are CFOs, controllers, and accountants.

What is the most important line on the statement of cash flows? ›

Operating Activities

It's considered by many to be the most important information on the Cash Flow Statement. This section of the statement shows how much cash is generated from a company's core products or services.

How to check cash flow statement is correct with example? ›

The first sign that the cash flow statement has errors in it is that it simply is out of balance, meaning that the total of its three sections is not equal to the change in the cash asset. This can be due to: Mathematical errors like adding errors or calculating the increase in the various line items incorrectly.

What is cash flow in Yahoo Finance? ›

A simple definition of a cash flow statement is how money, that is cash and cash equivalents, enters and exits a company.

What is the difference between a ledger and a cash flow? ›

Your company's cash flow is a basic measure of its financial health. While your business may have cash coming into and out of many accounts, your general ledger is the place where you assemble all your cash-flow information, both income and expense, in one "cash" account.

What are cash flows used for in accounting? ›

The purpose of a cash flow statement is to provide a detailed picture of what happened to a business's cash during a specified period, known as the accounting period. It demonstrates an organization's ability to operate in the short and long term, based on how much cash is flowing into and out of the business.

What is the difference between cash flow and cash book? ›

Cash book is a ledger which consist of records of all cash transactions by a company in a systematic manner. Whereas, cash flow statement is a record of performance of an entity over a specified period of transaction. Cash flow statement is prepared on annual basis whereas cash book is maintained on day to day basis.

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