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Cash Flow Statement

This guide explains how to use the Cash Flow Statement to track the actual movement of money in and out of your business. If the Profit & Loss tells you if you are profitable, the Cash Flow Statement tells you if you are solvent (able to pay your bills).

What is a Cash Flow Statement?

The Cash Flow Statement shows the cash generated and used during a specific period. It answers the critical question: "Why do I have (or not have) cash in the bank, even though I made a profit?"

It is divided into three main activities:

  1. Operating Activities: Cash from day-to-day business (e.g., receipts from customers, payments to suppliers).
  2. Investing Activities: Cash from buying or selling long-term assets (e.g., buying a new machine, selling a vehicle).
  3. Financing Activities: Cash from funding sources (e.g., taking a bank loan, owner investments, paying dividends).

Why does this matter?

  1. Survival: You can be profitable on paper but go bankrupt if you run out of cash to pay rent or salaries.
  2. Planning: Helps you predict future cash needs.
  3. Insight: Shows if your business operations are generating enough cash to grow.

Where to Find It

Navigate to: Accounting → Reports → Cash Flow Statement

💡 Tip: You can also find it under the "Reporting" section of your dashboard or reports hub.

How to Use the Report

1. Set Your Date Range

The Cash Flow Statement covers a period of time.

  • Start Date: The beginning of the period (e.g., Jan 1).
  • End Date: The end of the period (e.g., Jan 31).

2. Generate the Report

Click the Generate Report button ().

Understanding the Sections

1. Operating Activities

This section starts with your Net Profit (from the P&L) and adjusts it for non-cash items and changes in working capital.

  • Net Income: The starting point.
  • Depreciation: Any non-cash depreciation expense is added back (since you didn't actually pay cash for it this month).
  • Changes in Working Capital:
    • Accounts Receivable: If this increases, cash decreases (customers owe you more).
    • Accounts Payable: If this increases, cash increases (you held onto cash by delaying payment).
    • Inventory: If you buy more stock, cash decreases.

2. Investing Activities

Shows cash spent or received from long-term investments.

  • Purchase of Fixed Assets: Shows as a negative number (cash outflow).
  • Sale of Fixed Assets: Shows as a positive number (cash inflow).

3. Financing Activities

Shows cash flows related to funding the business.

  • Loans Received: Cash inflow.
  • Loan Repayments: Cash outflow (principal only).
  • Capital Contributions: Owners putting money in.
  • Dividends/Drawings: Owners taking money out.

4. Net Change in Cash

The total increase or decrease in cash for the period.

  • Beginning Cash Balance: Cash at the start date.
  • Ending Cash Balance: Cash at the end date.

[!IMPORTANT] Cash vs. Profit "Profit is an opinion, Cash is a fact." You can manipulate profit with accounting rules (like depreciation or accruals), but your bank balance is a hard number.

Interpreting the Numbers

Positive Operating Cash Flow

This is generally good! It means your core business is generating cash.

Negative Operating Cash Flow

This can be a warning sign. It might mean you are:

  • Not collecting payments from customers fast enough.
  • Buying too much inventory.
  • Operating at a loss.

Disconnect Between Profit and Cash

Scenario: You show a $10,000 profit but your bank account is empty. Why?

  • Maybe you spent $15,000 buying a new machine (Investing Activity).
  • Maybe customers bought $20,000 of goods on credit but haven't paid yet (Accounts Receivable increase).
  • Maybe you paid off a large loan (Financing Activity).

Best Practices

📅 Timing

  • Review Monthly: Check this report alongside your P&L and Balance Sheet.
  • Forecast: Use historical cash flow trends to predict future cash needs (e.g., "We always run low on cash in January").

🔍 Drilling Down

  • Investigate Spikes: If you see a large change in Accounts Receivable, check your Aged Receivables report to see who hasn't paid.