Introduction to the Statement of Cash Flows
What Is the Statement of Cash Flows?
The Statement of Cash Flows (SCF) reports how cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents changed during an accounting period. Unlike the income statement, which is prepared using accrual accounting, the SCF focuses on actual cash inflows and outflows. It helps investors, creditors, and management evaluate a company's liquidity, solvency, and ability to generate future cash.
The statement classifies cash flows into operating, investing, and financing activities, making it easier to understand where cash comes from and how it is used.
Note
Net income does not equal cash flow because revenues and expenses may be recognized before or after cash is received or paid.
- Reports actual cash movements.
- Explains changes in cash balances.
- Complements the balance sheet and income statement.
- Helps assess liquidity and financial flexibility.
Summary
The Statement of Cash Flows explains how a company's cash changed during the reporting period.