What is a Cash Flow Statement?

A cash flow statement, otherwise known as a financial statement, is a document issued by a company or private entity to show the movement of cash or cash equivalents in said business. It reports the flow of cash whether moving in or out of the business.

How to fill out a Cash Flow Statement?

We will be giving you a step-by-step guide on how to properly prepare a cash flow statement.

Before attempting to prepare a cash flow statement, be sure that all information that you are about to place is accurate and complete. This document will contain all of your business’ cash receipts and expenses, and any miscalculation could reflect badly on your company.

Initial Details
You will first need to input your company’s name at the very top of the page. After placing your business’ name, you will need to place the period of cash flow that you would like to place on the financial statement. Indicate the “from” and “to” dates on the appropriate spaces.

Operations Activities
In this section, you will be asked to write down any and all revenue and expenses from operating your business.

In the spaces for your cash receipts, write down the amount received from customers and others.

Then, in the following spaces, you will be asked to write down your operating expenses, specifically, the cash paid for inventory purchases, general operating and administrative expenses (excluding depreciation), wages expenses, interest, and your income tax expense.

To finish this section, indicate your net cash flow from operations activities. To get your net cash flow, add your cash receipts to get your total operating receipts and then subtract this by your total operating expenses, which is achieved by adding all operating costs. The total should be your net cash flow from operations activities.

Investing Activities
In this section, you will be asked to write down any and all revenue and expenses from investments.

Begin this section by writing down your cash receipts from property and equipment sales, followed by your collections from principal loans, and sales of investment securities.

Then, write down the amount of cash you paid for purchases of property and equipment, making loans to separate entities, and purchases of investment securities.

To complete this section, indicate your net cash flow from investing activities. To get your net cash flow, add your cash gains to get your total investing receipts and then subtract this by your total investing expenses, which is achieved by adding all investing costs. The total should be your net cash flow from investing activities.

Financing Activities
In this section, you will be asked to write down any and all revenue and expenses from any and all financing activities.

For the first part of this section, you will need to write down the amount of money received from any additional investments.

Succeeding this, write down any amounts paid for the owner’s withdrawal, and dividends.

To complete this section, indicate your net cash flow from financing activities. To get your net cash flow, take the amount of money received from additional investments and then subtract this by your total financing expenses, which is achieved by adding any amounts paid for the owner’s withdrawal and dividends. The total of this should equate to your net cash flow from financing activities.

Final Details
You have almost completed your cash flow statement. You just need to write down a few more extra details to complete this document.

In the box adjacent to the words “ADD: Cash, Beginning”, write down the amount of cash you had at the beginning of the cash flow statement. If you just started your business, this would be your capital.

Below the previous box, write down your net cash flow. To get this, add the net cash flow from your operating activities, investment activities, and your financing activities. Add this to the amount of cash placed in the previous box.

To finish up, write down your full legal name and the date of signing in the appropriate spaces.

Once you have completed everything, congratulations, you have successfully filled out a cash flow statement.

Frequently Asked Questions About a Cash Flow Statement

Can I fill out a Cash Flow Statement?

If you currently have or work for a business and would like to see your company’s expenses, whether they’re moving in or out of the business, then you are eligible to prepare a cash flow statement.

What do I need to fill out a Cash Flow Statement?

For a cash flow statement, most of what you will need to prepare are related to your company’s expenditures.

You will first need your company’s or business’ name as well as the period of cash flow you would like to monitor on your financial statement.

You will then need a breakdown of your operations activities. This means you will be needing your cash receipts from customers as well as any other cash receipts. Specifically, you will need the amount of cash paid for inventory purchases, general operating expenses, administrative expenses (excluding depreciation), wage expenses, interest, and income tax expenses.

Afterward, you will need your net cash flow from operating activities. This can be computed by adding all your cash receipts and then subtracting the total expenses from this amount.

You will next need a breakdown of your company’s investing activities. This means you will need the cash receipts from sales of property and equipment, collections from principal loans, and sale of investment securities. Additionally, you will be needing the cash paid for the purchase of property and equipment, making loans to other entities, and purchases of investment securities.

You will be needing the net cash flow from investing activities as well, which is once again the total amount from receipts subtracted by the total expenses.

Next, you will need a breakdown of your business’ financing activities. Specifically, you will be needing your cash receipts from additional investments, and your cash payments owner’s withdrawal and dividends.

You will once again need your net cash flow from financing activities. This can be computed by adding all your cash receipts and then subtracting the total expenses from this amount.

You will also need your full legal name and the date of signing.

What is the formula for a cash flow statement?

The following are the formulas in a cash flow statement:

The cash flow from operating activities equation is:

Net Income + Depreciation and Amortization - Deferred Taxes + Accounts Receivable - Inventory - Other Current Assets - Accounts Payable + Salaries, Wages, and Commissions Payable - Other Current Liabilities - Income Tax Payable = Cash Flow from Operating Activities

Cash Flow from Operating Activities is used to determine the cash generated from a business's normal activities. Operating activities include all aspects of a business that deal with day-to-day operations, such as collecting money from customers and paying bills.

Cash Flow from Investing Activities equation is:

Capital Expenditures - Proceeds from the Sale of Long-Term Assets - Investments in Other Companies = Cash Flow from Investing Activities

Cash Flow from Investing Activities is a section on the cash flow statement where inflows and outflows of cash due to various investing activities are reported. The main adjustments used in this calculation are capital expenditures, proceeds from the sale of long-term assets, and investments in other companies.

Cash Flow from Financing Activities equation is:

Debt Repayments + Proceeds from Issuance of Debt + Proceeds from Issuance of Equity - Payments of Dividends = Cash Flow from Financing Activities

Cash Flow from Financing Activities is a section on the cash flow statement where inflows and outflows of cash due to various financing activities are reported. The main adjustments used in this calculation are debt repayments, proceeds from the issuance of debt, proceeds from the issuance of equity, and payments of dividends.

What are the components of the cash flow of the operating activities equation?

The following are the components of the cash flow from the operating activities equation:

Net Income — Net income is the amount of earnings that remains after all expenses, taxes, interest payments and preferred dividends have been paid.
Depreciation and Amortization — This account reflects the expense incurred when assets are purchased for use in a business (depreciable) or when an asset is purchased for resale purposes (amortizable).
Deferred Taxes — This account reflects the difference between taxes that have been paid and the amount of taxes that would be paid if the financial statements were prepared according to Generally Accepted Accounting Principles. The deferred tax liability (asset) is created when a temporary difference exists between the reported financial statement income and taxable income.
Accounts Receivable — Accounts receivable is an asset account that represents money owed to the company by its customers. The cash flow from the operating activities equation subtracts the account receivable balance because the company will not have received the cash from its customers yet.
Inventory — Inventory is an asset account that represents products that a company has on hand for sale. The cash flow from the operating activities equation subtracts the inventory balance because the company has not yet received cash from customers in exchange for the inventory.
Other Current Assets — Other current assets are an asset account that includes any other short-term assets a company has, such as prepaid expenses. The cash flow from the operating activities equation subtracts this amount because the company has not yet received cash from these short-term assets.
Accounts Payable — Accounts payable is a liability account that represents money owed to the company's suppliers for products bought on credit. The cash flow from the operating activities equation subtracts this amount because the company has not yet paid any of its suppliers for inventory items purchased during the current period.
Salaries, Wages, and Commissions Payable — Salaries, wages, and commissions payable is a liability account that represents the money owed to employees or other personnel for salaries, wages, and commission earned during the current period. The cash flow from the operating activities equation subtracts this amount because all salary, wage, and commission expenses have not been paid yet.
Other Current Liabilities — Other current liabilities are a liability account that represents money owed to creditors for expenses incurred during the current period. The cash flow from the operating activities equation subtracts this amount because all other current liabilities have not been paid yet.
Income Tax Payable — Income tax payable is a liability account that represents the total income taxes due for the period, but has not yet been paid. The cash flow from the operating activities equation subtracts this amount because the company has not yet paid its income taxes for the current period.
Changes in Net Working Capital — Changes in net working capital are a component of the cash flow from the operating activities equation which measures the change in a company's current assets and liabilities from one period to the next. The cash flow from the operating activities equation subtracts this amount because it measures the use of cash, rather than the generation of cash.

What are the three types of cash flow?

The three types of cash flow are the following:

Operating cash flow (OCF): The amount of cash generated by normal business operations. This is usually calculated as the net income before any adjustments to the accounts (depreciation, amortization, and others) minus certain other "cash flow" items like working capital and taxes paid early or late.
Investing cash flow (ICF): The amount of cash used for investing activities, such as buying or selling property, businesses, or securities.
Financing cash flow (FCF): The amount of cash generated or used from financing activities, such as issuing or repaying debt or dividends paid to shareholders.

What is the purpose of a cash flow statement?

The purpose of a cash flow statement is to show how a company's cash has been used and generated over a period of time. The statement can help investors, creditors, and others to understand how the company is performing. It serves as a financial report card, summarizing a company's cash flow activities over a specific period of time. Moreover, the cash flow statement is necessary to measure the amount of cash the company has generated from its operations, and it can be used as a guide in forecasting upcoming periods.

What are the steps to prepare a cash flow statement?

Follow these steps to prepare a cash flow statement:

Prepare a Statement of Retained Earnings. This can be done by adding net income for all years and beginning retained earnings on the balance sheet, then subtracting dividends paid to stockholders. If this statement is not provided on a separate sheet, simply add the net income from each year to the prior period's retained earnings figure from the balance sheet.
List all sources of cash inflows and outflows over the period being studied, regardless of whether they are periodic or one-time occurrences. Incoming cash should be listed as a positive number, outgoing cash as a negative number.
Compute: Beginning Cash Balance = Ending Cash Balance + Net Income - Dividends Paid
Subtract any non-cash items from the beginning cash balance, but remember that depreciation does increase expenses, which are deducted on the income statement, not the cash flow statement. This is because depreciation is an accounting convention and not a real-life expense like wages or office supplies.
Add all other sources of cash flow together. This would include, for example, the proceeds from the sale of assets, borrowings, and increases or decreases in accounts receivable and payable.
Subtract all cash outflows from 5 to get the net increase (or decrease) in cash during the period.
The final figure is the net change in cash for the period.

What are the two ways to prepare a cash flow statement?

There are two ways to prepare a cash flow statement:

Direct method
Indirect method

The main difference between the direct method and the indirect method lies in the treatment of operating activities. Under both methods, all income statement items are carried forward to the next period without change. However, under the indirect method, the balance sheet is not adjusted to reflect changes in working capital balances during operations. This means that the indirect method understates net income for operating activities.

The direct method is used to prepare the cash flow statement because it more closely follows the timing of cash being paid out or received into a business. It requires that all items on the income statement should be included in calculating net cash flows from operating activities while only adjusting for non-cash items when reconciling net income to net cash flows from operating activities. The indirect method is used when preparing the consolidated cash flow statement for a group of companies. Moreover, the indirect method is also used to calculate the cash flows from investing and financing activities.

The two methods produce broadly similar results, but the direct method is more transparent as it follows the actual flow of cash in and out of a company. There are certain items that are non-cash expenses such as depreciation and amortization, which are added back to the net income when calculating cash from operating activities under the direct method. In the indirect method, it will add back depreciation and amortization but only in proportion to their use of non-cash items in the calculation of net income.

Who uses a cash flow statement?

Some people and groups that use cash flow statements include the following:

Investors — Investors use cash flow statements to assess a company's ability to generate future income and repay debt obligations.
Creditors — Creditors use cash flow statements to determine the company's creditworthiness and the likelihood of being repaid.
Management — Management uses cash flow statements to make strategic decisions, such as whether to invest in new projects or issue dividends to shareholders.
Employees — Employees use cash flow statements to assess their chances of receiving a bonus or promotion.

Each of these groups uses cash flow statements for different reasons.

Cash flow statements are also used by analysts and other interested parties to make investment decisions and recommendations. By looking at a company's cash flow statements, an investor can estimate how funds are being used and the different sources from which they derive. This information is key if a person is to make sound investment decisions because he or she needs to know whether a company has enough money in reserve to maintain operations until the next round of financing.

An analyst will also look at the cash flow statements of competitors in order to gain insight into their financial status. Most companies will disclose information about their operations and finances, but not all firms are required to publish accurate information. A person can use cash flow statements to compare different companies' liabilities, or debts, to find out which has the greatest debt burden. Cash flow statements can also help a person to determine a company's liquidity, or how easily it can meet its short-term financial obligations.

Cash flow statements are an important tool for assessing a company's financial health and making sound investment decisions. By understanding how a company is using its funds, investors can better assess the risks and potential rewards of putting money into the company. Creditors will be better able to determine whether a company is likely to repay its debts, and management will know where different forms of capital are being employed.

Is cash flow the same as profit?

Cash flow and profit are not the same things, and you cannot use one to measure the other.

In order to understand the difference between cash flow and profit, it is important to first understand what each term means. Cash flow is defined as a company's earnings before interest and taxes (EBIT), minus its capital expenditures. In simpler terms, cash flow is the amount of money that a company actually has coming in minus the amount of money that it spends.

Profit on the other hand is defined as net income plus interest expenses, taxes, depreciation, and amortization. For example, if your annual revenue was $100 million but you needed to spend $50 million on capital expenditures, then your cash flow would be $50 million. However, if you earned $10 million in net income during the year and had $5 million in interest expenses, your profit would be $15 million.

The two terms are not interchangeable because cash flow measures a company's actual operating performance, while profit is what is left over after interest and taxes are paid.

What is the difference between an income statement and cash flow?

An income statement and a cash flow are two important financial statements for a business. The income statement shows how much money a company has earned over a certain period of time, while the cash flow statement shows how much cash the company has generated and spent over that same period.

While the two statements are different, they both provide important information about a company's financial health. The income statement can tell you if a company has been profitable or not, and the cash flow statement can show you how much working capital (the money used to run operations) a business has on hand.

What is the difference between cash flow and P&L?

A cash flow statement and a P&L or profit and loss statement are two different financial statements. Both are used to document financial transactions.

The cash flow statement is one of the three key financial statements that publicly-traded companies report, along with the balance sheet and the income statement or P&L. The cash flow statement reports changes in a company's cash balance from one accounting period to the next. It reconciles net income to cash flow from operating activities, investing activities, and financing activities.

The P&L statement measures a company's profitability over a period of time. It shows how much revenue a company earned during the period and how much it cost the company to generate that revenue. The statement also includes income taxes, interest expenses, and other deductions. The resulting number is either a profit or a loss.

The main difference between a cash flow statement and a P&L is that the cash flow statement shows changes in cash flows, while the P&L focuses on profitability as measured by net income. The two statements are related; however, because recording certain transactions (like depreciation or amortization of intangible assets) can affect a company's net income but not its cash flow.

Is a cash flow statement the same as a balance sheet?

A cash flow statement is not the same as a balance sheet. A cash flow statement shows how much money a company has earned and spent over a specific period of time. A balance sheet, on the other hand, shows how much money a company has at a specific moment in time.

What are the components of cash flow statements?

There are three sections to a cash flow statement: operating activities, investing activities, and financing activities.

The first section, operating activities, includes all of the company's transactions that are not investment activities or financing activities. Examples of operating activities would be making sales, purchasing supplies, and paying expenses. If a company's cash balance has increased over the period being reported on the statement, then the amount is classified as operating cash flow. However, if a company's cash balance decreases over the time period being reported on the statement, then the amount is classified as a use of cash.

The second section, investing activities, includes all of the company's transactions that are related to investments. This could include things such as buying or selling property, purchasing new equipment, or making loans. If the company's cash balance has increased over the period being reported on the statement, then the amount is classified as investing cash flow. However, if a company's cash balance decreases over the time period being reported on the statement, then the amount is classified as an investment use of cash.

The third section, financing activities, includes all of the company's transactions that are related to financing new and existing investments such as obtaining new loans, repaying existing loans, buying back stock, or paying dividends to shareholders. If the company's cash balance has decreased over the period being reported on the statement, then the amount is classified as financing cash flow. However, if a company's cash balance has increased over the time period being reported on the statement, then that amount would be classified as financing cash inflow.

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Fillable Form Cash Flow Statement