What is a cash flow statement?

Cash flow statements are an integral part of business success. We take a look at key terms, formatting methods, and show you where you can find free templates.

2 August 2021

What is a cash flow statement?

Cash flow is the movement of all funds coming into and going out of your business. Having a good grasp of your cash flow can help your business to keep operating in profit. Cash flow statements will help you, as a business owner, manage your cash flow position. They’re an integral part of all successful businesses.

Understanding a cash flow statement

To get an accurate picture of your cash flow, you’ll need to produce a cash flow statement, which works alongside your balance sheet and income statement.A cash flow statement is a financial statement that summarises the amount of cash entering and leaving your business. It can highlight how well your cash position is being managed and is a measure of how you generate cash to pay off any debt and fund your operating expenses.

Cash flow statement format

Dealing with your finances can sometimes feel daunting, but creating a cash flow statement will help you keep on top of things and picture how your business is performing. Your cash flow statement should use the following format: 1. Cash from operating activities 2. Cash from investing activities 3. Cash from financing activities 4. Disclosure of noncash activities

Follow these steps to create a cash flow statement:

1. Gather the relevant information.

Pull together your balance sheet, comprehensive income statement, change in equity statement, and statement of cash flow from your previous reporting period. Add any additional information about material transactions from your contracts, legal files, investment documents, etc.

2. Use the balance sheet to calculate any changes.

Work out any changes to your balance sheet over the current reporting period. Look at all of your assets, equities and liabilities. Subtract the closing balance sheet figure from the opening balance sheet figure.

3. Add your balance sheet changes to your cash flow statement.

Take the changes you recorded in the previous step and enter them into a blank cash flow statement.

4. Adjust your statement for non-cash items.

Identify any potential non-cash items recorded on the balance sheet — such as foreign exchange differences or income tax expenses — and adjust the cash flow statement accordingly.

5. Make your final calculations.

Add up all the individual entries on your cash flow statement, calculating the overall change in the balance sheet while adjusting for non-cash items. This will give you the total cash movement for each particular item.

Cash flow statement template

Save yourself time by using a free cash flow statement template, which will calculate the correct values based on your input.

Our cash flow forecast template will also help you to understand the money coming in and going out of your business moving forward.

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Cash flow statement indirect method

The main difference between the direct method and the indirect method of presenting cash flows relates to the cash flow from operating activities. For the indirect method, the operating activities section begins with a company’s net income. The indirect method of cash flow statements is popular because the information required is relatively easy to find from the accounts. Still, it does not give an obvious view of how cash flows through a business. With the direct method, the amount of net income is not the starting point.

Depreciation in cash flow statements

Depreciation is tax-deductible and will reduce the cash outgoings related to income taxes, but it doesn’t directly impact the amount of cash flow generated by a business. It’s considered a non-cash expense, and –when creating a budget for cash flows – depreciation is typically listed as a reduction from expenses.

Does your cash flow statement need a hand?

Staying on top of your cash flow is crucial to business success; a cash flow statement is a great way of managing your cash flow position. If you find that late payments from clients are impacting your cash flow position, iwocaPay can help get your invoices paid sooner. If your cash flow statement shows that you need help managing cash flow in the short term or you need some extra financial support to grow your business, our Flexi-Loan is the perfect solution.

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Charlotte is a PR & Communications specialist at iwoca.

Article updated on: 21 September 2021

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