5.2.4. Cash Flow Statement

The cash flow statement provides a high-level view of how your cash has moved through your business during the year. It breaks down the cash that you generated or used into three types of activities:  

Operating activities: These cash flows, reflected in your company’s income statement, stem from your company’s regular business activities. They comprise the core operations of your business – what your business is compensated for and how it covers its expenses. These activities include the sale of products or services, procurement of materials, payment for services, utilities, wages, and taxes. 

Financing activities: These cash inflows arise from borrowing funds from banks or receiving investments from investors. Cash outflows in this category include loan repayments and dividends paid to shareholders, as well as additional contributions made by shareholders to the business. 

Investing activities: These cash outflows (or inflows) occur when purchasing (or selling) long-term assets such as machinery, tools, buildings, or new vehicles. 

Most accounting software can create a cash flow statement.  It is an important statement to monitor monthly and it explains how cash was earned and disbursed in the business.