Cash Flow Statement: Format, Example and Preparation

A cash flow statement explains how cash changed during a completed reporting period. It groups movements into operating, investing and financing activities, then reconciles opening to closing cash. Unlike an income statement, it follows cash movements rather than simply recognizing sales and expenses. Unlike a forecast, it reports what happened.

For the fictional Cedar Supply example, March 2026 profit is $9,000, operating cash flow is $2,000, equipment uses $12,000 and net financing provides $10,000. Total cash movement is zero, so opening and closing cash are both $10,000. The unchanged balance hides a reliance on new borrowing. All amounts are USD teaching assumptions, not customer results or industry benchmarks.

Cash flow statement format: the three sections

Cash flow means money moving during an interval. Cash is a balance at a date. The statement links the two: closing cash = opening cash + operating cash flow + investing cash flow + financing cash flow, with foreign-exchange or other required reconciling effects separately identified when applicable. This example has none. Use one consistent cash and cash-equivalent perimeter at both dates. Transfers between included bank accounts are internal movements, not new receipts or expenses.

A complete cash flow statement example

Cedar Supply is an invented US-style nonfinancial reseller. The simplified example treats interest paid and income tax paid as operating cash flows, equipment purchases as investing, and debt principal and owner distributions as financing. It has no foreign exchange, restricted cash, cash-equivalent trades, business combinations, leases, asset sales or noncash acquisitions. Do not apply these simplified classifications to another reporting framework without checking its rules.

Operating receipts of $88,000 less $86,000 operating payments give $2,000. Then $2,000 − $12,000 + $10,000 = $0 net change. Add this to the $10,000 opening balance. Neither the $15,000 loan nor the owner distribution belongs in revenue or operating profit.

Direct versus indirect method: the same operating total

The direct method groups actual operating receipts and payments. The indirect method reconciles accrual profit to operating cash by adjusting for noncash items, operating asset and liability changes, and other items requiring reclassification. These are alternative presentations of the operating section; they do not create different closing cash balances.

Here the income statement is $100,000 revenue − $55,000 COGS − $20,000 payroll − $10,000 other operating expense − $3,000 depreciation − $1,000 interest − $2,000 tax = $9,000 net income. The indirect bridge is $9,000 + $3,000 depreciation − $12,000 receivables increase − $5,000 inventory increase − $1,000 prepayment increase + $7,000 supplier-payables increase + $1,000 payroll-accrual increase = $2,000 OCF.

Depreciation is added back because it reduced profit without being a current cash payment. It is not a cash receipt. The equipment payment is reported separately in investing. The operating cash flow guide shows opening and closing balances and derives each cash payment, with an editable reconciliation checker.

How to prepare a cash flow statement from your records

1. Set the dates and perimeter. List included bank accounts, cash and qualifying equivalents; reconcile both endpoints to their records.
2. Collect supporting schedules. Use the income statement, comparative balance sheets, bank and cash ledgers, receivable/payable roll-forwards, fixed-asset register, borrowing records and equity movements.
3. Identify actual cash events. Separate accrual entries, write-offs and other noncash movements from bank payments. Do not treat every balance-sheet difference as cash.
4. Build the operating section. Choose the presentation, classify operating balances and cross-check unusual movements. Reconcile direct and indirect views when both are available.
5. Build investing and financing. Use gross proceeds and cash payments where required. Check loan principal separately from interest and owner distributions separately from payroll.
6. Reconcile closing cash. Investigate differences and document excluded noncash transactions and framework-required disclosures.

A simple bank export will not identify all accrual adjustments or tell you whether a payment buys an asset. For example, a $12,000 payable increase caused by equipment acquired on credit must not be added into operating cash as though it were an unpaid inventory bill. Use transaction detail, not a universal “current liabilities” shortcut.

Check the statement against the balance sheet

Net equipment rises by $9,000: $12,000 purchases less $3,000 depreciation. Debt rises by $12,000: $15,000 borrowed less $3,000 repaid. Equity rises by $7,000: $9,000 net income less $2,000 distributions. These supporting roll-forwards explain why total asset growth is much larger than the change in cash.

How to read the result without confusing cash and profit

Ask where the money came from before deciding whether a positive balance is healthy. Cedar Supply earned $9,000 but generated only $2,000 operating cash. It also spent $12,000 on equipment. New borrowing, net of repayments and distributions, kept the bank balance unchanged. Without that $10,000 net financing, modeled closing cash would be zero; the example does not establish that operations can fund the same investment repeatedly.

Negative investing cash may represent productive expansion, while positive investing cash may come from selling equipment. Positive operating cash may be temporary if overdue bills have increased. Review several comparable periods, customer collections, inventory and payment obligations. A statement alone cannot show whether a payroll payment earlier in the month was covered; it aggregates the completed period.

Statement, forecast and profit report answer different questions

Use the net cash flow calculator to total already-classified activity amounts and compare calculated cash with an observed closing balance. It does not classify the ledger or prepare every required statement disclosure. Then carry verified closing cash into the 13-week cash forecast. The profit-versus-cash guide covers the separate profitability question.

Common cash flow statement mistakes to catch

Download the statement example and close checklist

Download the cash flow statement CSV. It is an editable values schedule containing the fictional direct statement, indirect bridge, balance-sheet checks and source-record fields. It contains no spreadsheet formulas or automated classifications. Save an untouched example, copy it for your reporting dates and replace every amount. Recalculate subtotals and reconcile them to the source records before using the result.

Continue with the complete cash-flow statement, the operating cash flow calculation or cash-flow problems and management according to the question you need to answer.

Reporting basis and sources

The SEC financial statements introduction provides the reporting context; its cash flow statement building blocks describes the two operating presentations. The worked Cedar Supply records, calculations and commentary are original teaching material. They are a simplified US-style illustration, not a complete filing template.

For IFRS users, consult IAS 7 and the adopted reporting requirements. IFRS 18 applies for annual periods beginning on or after January 1, 2027, with earlier application permitted; related IAS 7 amendments change the indirect-method starting subtotal and interest/dividend classification requirements. A net-income bridge should not be copied unchanged into an IFRS 18 reporting package. Sources checked October 25, 2026.

Verify working-capital balances before the cash reconciliation

The working-capital calculation and balance-sheet example separates current balances, operating balances and bank cash. Match those account definitions before using changes in the operating section.

Keep earnings and cash subtotals distinct

The reconciled EBITDA, net-income and cash-flow comparison follows one original statement through its earnings and operating-cash bridges. An EBITDA result is not the statement’s closing bank balance.