Quick answer
The cash flow statement reports cash inflows and outflows during a period, classified as operating, investing, or financing activities. It explains the change in cash and cash equivalents and reconciles its closing amount to the corresponding balance-sheet amounts.
The cash flow statement is also called a statement of cash flows. It shows money received and paid during the period and reconciles opening and closing cash and cash equivalents. Those equivalents are short-term, highly liquid investments held for cash needs that can be converted to known amounts with little risk of a change in value; see Cash and Cash Equivalents for that boundary. Transfers between cash and qualifying cash equivalents change where funds are held without creating an operating, investing, or financing cash flow.
Cash flow categories
- Operating activities
- Cash receipts and payments from the entity’s main revenue-producing activities, such as customer receipts and operating payments.
- Investing activities
- Cash paid to acquire, or received from selling, long-term assets and other investments. Purchasing equipment is a common investing cash outflow.
- Financing activities
- Cash flows that change borrowings or contributed equity, such as proceeds from issuing shares or repayment of loan principal. Issuing shares for cash is a financing inflow.
Profit and cash differ because profit records income when earned and costs when incurred, while cash flow records collections and payments. For example, a sale not yet collected increases profit but not cash. An increase in an operating asset such as Accounts Receivable or Supplies is generally deducted in the indirect reconciliation. An increase in a related operating liability such as Accounts Payable is generally added because that amount has not yet been paid. The two changes must be read together when an asset was acquired on credit.
Direct and indirect methods of presenting operating cash flow
The operating section can show major cash receipts and payments directly, or it can start with accrual-basis profit and reconcile that amount to operating cash flow. These are called the direct method and indirect method. They organize the operating section differently but arrive at the same net operating cash flow for the period.
Direct method
Presents major operating cash receipts and payments, such as cash collected from customers and cash paid for operating costs.
Indirect method
Reconciles the applicable profit subtotal to operating cash flow by removing non-cash effects and reflecting relevant changes in operating assets and liabilities.
The starting subtotal depends on the reporting requirements. The IAS 7 amendments accompanying IFRS 18 require operating profit as the indirect-method starting point when they apply. The reconciliation must remove or adjust items included in that starting amount; it must not reverse an expense that was never included.
Depreciation itself never becomes a cash flow. Under the indirect method, it is added back to the extent it reduced the starting profit subtotal without using cash in the current period. The adjustment reverses that non-cash deduction; it does not create cash.
Changes in operating assets and liabilities, such as receivables, supplies, and trade payables, are often called operating working-capital adjustments. They reflect timing differences between profit and operating cash flow. They exclude cash itself and financing balances, so they are not simply the change in total current assets less total current liabilities.
Read Maple Tech’s March cash flow statement
Maple Tech began March with no cash. It received $50,000 from issuing shares and $6,000 from customers, then paid $12,000 for equipment and $1,500 for March rent. It has no cash equivalents. These are its only March cash movements.
Scroll horizontally to see all columns.
| Line item | March 2026 |
|---|---|
| Operating Activities | |
| Cash received from customers | 6,000 |
| Cash paid for rent | (1,500) |
| Net Cash from Operating Activities | 4,500 |
| Investing Activities | |
| Cash paid to acquire equipment | (12,000) |
| Net Cash used in Investing Activities | (12,000) |
| Financing Activities | |
| Cash received from issuing common shares | 50,000 |
| Net Cash from Financing Activities | 50,000 |
| Net Increase in Cash | 42,500 |
| Cash, beginning of March | 0 |
| Cash, March 31 | 42,500 |
The $42,500 ending amount agrees exactly with the Cash account and Maple Tech’s balance sheet. The $2,400 supplies purchase is absent from the cash-flow totals because it remains unpaid; the Supplies and Accounts Payable balances still appear in the accounting records and on the balance sheet. The $1,000 accrued service and $200 depreciation are also absent from the cash-flow totals because neither moved cash in March.
Reconciling $3,800 profit to $4,500 operating cash
An indirect reconciliation reaches the same $4,500 by starting with accrual profit and adjusting for depreciation and changes in Accounts Receivable, Supplies, and Accounts Payable:
Scroll horizontally to see all columns.
| Line item | Amount |
|---|---|
| March profit | 3,800 |
| Add: Depreciation | 200 |
| Less: Increase in Accounts Receivable | (1,000) |
| Less: Increase in Supplies | (900) |
| Add: Increase in Accounts Payable | 2,400 |
| Net Cash from Operating Activities | 4,500 |
Maple Tech began March with zero Supplies and zero Accounts Payable, so the $900 supplies increase and $2,400 payable increase are the net changes for the month. Starting with $3,800 profit, the bridge adds $200 depreciation, subtracts the $1,000 receivable increase and $900 supplies increase, then adds the $2,400 payable increase: $3,800 + $200 − $1,000 − $900 + $2,400 = $4,500. The payable adjustment removes the unpaid supplies purchase from the cash result: it was recorded, but no cash was paid in March.
The direct calculation is $6,000 of customer receipts less the $1,500 rent payment. The indirect bridge reaches the same $4,500 operating cash flow from a different starting point.
Non-cash investing and financing transactions
A transaction does not enter the main cash-flow totals merely because it changes debt, equity, or long-lived assets. Acquiring equipment by issuing shares, converting debt into equity, or initially recognizing certain lease assets and liabilities can change financial position without moving cash at that time. Material non-cash activity is explained elsewhere in the financial statements as required by the applicable framework.
Later cash payments are reported when they occur and classified based on what each payment represents. This is why readers should reconcile the cash flow statement to Cash while also reviewing changes in debt, equity, and long-lived assets that are larger than the cash movements shown.
Classification of selected cash flows
The Maple Tech example contains straightforward operating, investing, and financing cash flows. Interest, dividends, income tax, and foreign currency cash flows require closer attention to their nature and the classification or disclosure rules effective for the reporting period.
Under ASPE Section 1540, interest and dividends included in net income are operating cash flows; amounts recorded outside net income follow their nature. Income-tax cash flows are operating unless they are specifically identifiable with investing or financing activity. IFRS reporting follows the IAS 7 version effective for the period, including the consequential changes when IFRS 18 applies.
Purpose and limits of cash flow classification
Positive operating cash flow can support the business, but one period may be increased by collecting old receivables or delaying supplier payments. Investing outflows may reflect productive expansion rather than deterioration. Financing inflows improve current cash while also creating debt or diluting owners. Interpretation requires the size, timing, sustainability, and related balance-sheet change—not the sign of one subtotal alone.