Cash flow statement
Factual definition
A cash flow statement is a statement showing how cash and cash equivalents changed during a period, with cash flows grouped into operating, investing and financing activities.
Reconcile operating, investing and financing cash flows
Hypothetical annual cash flows in US$ millions: operating +40, investing −25 and financing −10 produce a +5 period change. Assume no foreign-exchange or other reconciliation effects and a consistent cash-and-cash-equivalents scope.
Closing cash and cash equivalents equal the opening balance plus 5; 5 is not itself the closing balance.
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| Cash flow / change | Amount |
|---|---|
| Operating | +40 |
| Investing | −25 |
| Financing | −10 |
| Period change in cash and cash equivalents | +5 |
Explain operating cash before using the total
The indirect method described in IAS 7 reconciles an earnings subtotal for noncash items and operating accruals. This explains why profit, operating cash flow and the total change in cash answer different questions.
Hypothetical 2025 reconciliation using net income as the starting point, before adopting IFRS 18: net income is US$8 million; depreciation is 2; trade receivables rise 3; inventory rises 1; and trade payables rise 2. Assume no other adjustments and that interest and taxes are included in operating cash flow and paid as expensed.
Operating cash is 8 + 2 − 3 − 1 + 2 = US$8 million. Spending 5 on equipment and repaying 2 of loan principal leaves a US$1 million cash increase.
Opening cash 4 becomes closing cash 5, with no FX or other reconciliation effects.
The debt repayment reduced cash without reducing this period’s net income. The equipment purchase used cash immediately while its depreciation is allocated over time.
Use the category detail to distinguish cash generated by operations from cash raised by new borrowing; the same closing balance can arise from either.
Where Cash flow statement fits
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