Glossary · Financial statements
Cash flow statement
A cash flow statement is a financial statement that shows where a business's cash came from and where it went over a period. It sorts cash movements into operating, investing and financing activities, and explains the change between the opening and closing cash balance. It shows how profit differs from cash.
Glossary / Cash flow statement · Also called statement of cash flows
How it works
Profit and cash are not the same. A business can show a profit while its bank balance falls, because customers have not paid, inventory has been bought, or a loan has been repaid. The cash flow statement reconciles the two.
The indirect method, used by most small-business software, starts with net income and adjusts it: add back depreciation (an expense with no cash), subtract an increase in receivables, add an increase in payables, and so on. Investing activities cover buying and selling equipment. Financing covers loans and owner money in and out.
For a small business, the most useful line is usually cash from operating activities. If it is negative for several months while the P&L shows a profit, customers are paying too slowly or too much money is tied up in stock.
Worked example: Profit of $40,000, cash up only $12,000
A company earns net income of $40,000. It recorded $6,000 of depreciation, its receivables grew by $14,000, it bought a $25,000 machine, and it borrowed $5,000.
Operating cash flow is $40,000 + $6,000 - $14,000 = $32,000. Investing is -$25,000. Financing is +$5,000. The net change in cash is $32,000 - $25,000 + $5,000 = $12,000.
| Section | Amount |
|---|---|
| Operating activities | $32,000 |
| Investing activities | -$25,000 |
| Financing activities | $5,000 |
| Net change in cash | $12,000 |
In AcboBooks
The Statement of Cash Flows report uses the indirect method and groups cash into operating, investing and financing activities for the dates you choose.
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Updated October 25, 2026. General information, not tax, legal or accounting advice. Rules and rates change; check with the IRS, the CRA, your state or province, or your accountant.
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