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Everything you need to know about the Statement of Cash Flows

Everything you need to know about the Statement of Cash Flows

Do you know what a Statement of Cash Flows is?

I've heard many people feel that this statement is the most important of the 3 financial statements...

and I can totally understand why


➡ What is the Statement of Cash flows?

This statement shows you all of the details that makes up the MOVEMENTS in your CASH BALANCE on the Balance Sheet.

It is one of 3 of the Financial Statements - the others being your Income Statement, and Balance Sheet

➡ Why is the Statement of Cash flows important?

While the answer here is subjective, it brings about an important point - your CASH is KING.

It can add a lot of value tracking exactly how this is moving, in addition to all the other financial metrics to track in your company

➡ How do you compile the Statement of Cash Flows?

2 ways:

1️⃣ the INDIRECT method

This method is calculated easily by taking your

Net Income

➕ adding back your Depreciation & Amortization

➕ adding back the difference between each of your balance sheet account

This method is the most common method used because of it's simplicity in creating

The challenge though, is that it can be tough to understand for someone without a Finance & Accounting background (which is most business owners)


Here, the information is presented in a much more legible format..

Common lines you'll see here are:

- Cash received from Customers

- Cash paid to vendors

- Cash proceeds from line of credit

But the challenge is the ease of producing, as you wouldn't be able to do so with only the data found on your Income Statement and Balance Sheet

Unfortunately, many accounting software's also don't give you the ability to prepare this report...though I have seen some that do

➡ What are the sections of the Statement of Cash Flows?

It is comprised of 3 sections


This section shows all of the cash flows from activities related to operating the business


Here you show the cash movements from long term assets that are purchased that will be depreciated over time.


Here you show the cash from all equity investments and debt injected / paid out from the company

This is all just a high level overview of the Statement of Cash Flows...there's a lot more to the topic


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