Statement of Cash Flow Explained

The Statement of cash flow tells you how much cash you had at the beginning of a given time period, how much you have at the end of that time period and then combines information from the Income Statement and Balance Sheet in order to provide you with a breakdown of how all that money came and went.

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

Operating Activities

This portion of the statement tells you how much money you earned during the period of time on the statement, how much money you spent operating your company during that same time period in order to earn that income, and how much money you have left (or are in the hole by) at the end of the given time period.

Operating activities include income from sales and services and expenses such as payroll, rent, office supplies, etc.

Investing Activities

Investing activities tells you how much you spent acquiring assets and how much you made if you sold any of your assets.

Financing Activities

Financing activities includes money received from loans and other long-term liabilities and money drawn from or paid into equity accounts such as owners contributions and owners draws.

Who is interested in the cash flow statement?

• Bank loan officers and other lenders who are considering giving you a loan or line of credit and need to determine your ability to pay the money back.


• Investors who are considering investing in your company and need to determine your company's ability to make a profit after paying its bills.


• Officers and other managers and owners of the company for internal purposes such as to determine what to budget in raises and bonuses for it's employees.

Return from Statement of Cash Flows to Four Basic Types of Financial Statements

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