As a business owner, you shouldn’t have to be an expert in bookkeeping to understand your financial statements (but hey, you can if you want to be!). You should be able to use them to make well-informed business decisions, though. In this post, we’ll show you how to read a Statement of Cash Flows, including:
What a Cash Flow Statement is and what it looks like.
A breakdown of the different categories and the information included in each (with a sample statement for reference).
Questions and scenarios to help you understand how to use your statement to make business decisions.
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What Is a Cash Flow Statement?
The Statement of Cash Flows is a reconciliation of the information on your Profit & Loss Statement and Balance Sheet. It’s a summary of all the transactions that move cash into and out of your business’ bank accounts.
Here’s a sample Cash Flow Statement that we’ll reference later on:

To build this statement, bookkeepers (or software) take the net income listed on your Profit & Loss Report and adjust it, so the new number reflects the actual cash that changed hands. The Cash Flow Statement is also where fundraising, selling shares, and interest earnings on investments gets reported.
This statement takes all that information and offers you a different perspective than the other reports can give. It enables you to reconcile and confirm that the numbers in your bank account actually match up with your financial activities. At the same time, it gives you an idea of the company’s cash position — by taking out transactions that haven’t actually happened yet (like credit card spending, accounts payable, accounts receivable) and representing all types of income (like income from shares).
Breaking Down the Cash Flow Statement Categories
Depending on your business expenses and income, your Cash Flow Statement will vary in depth and complexity. But the five main components of the statement are always constant. They include:
Net income
Operating cash flow
Cash flow from investing activities
Cash flow from financing activities
Final cash amount.
Let’s look at what goes into each of those categories and what it represents for your business.
Net Income

Even if you don’t spend a lot of time analyzing financial statements, net income is a number most business owners are familiar with. It represents your net earnings after your expenses have been deducted from total sales. You might also call it “profit” or your “bottom line.”
Net income is where every Statement of Cash Flows starts, and it comes directly from your Income Statement (also known as Profit & Loss Report). If you use accrual accounting (as many businesses do), your net income will take non-cash transactions into account. That means it won’t match up with how much cash is actually in your bank account. It often includes:
Revenue you earned but haven’t actually received yet.
Expenses you incurred, but haven’t yet paid.
Other adjustments (like depreciation) that affect your net income but don’t involve a cash transaction.
The Cash Flow Statement goes on to make adjustments to net income — so your net cash (or final cash value) matches your bank account.
Operating Cash Flow

The first section of the Cash Flow Statement represents cash transactions that have to do with regular operating activities of your business — the cash you spend and receive as a result of doing what your business does every day. The cash flow statement adjusts your net income based on transactions that had cash movement in the month. Some examples include:
Depreciation expenses (non-cash transactions)
Accrued marketing expenses (non-cash transactions)
Accounts receivable net change in the month
Credit cards, paid in the month
Annual software subscription pre-payment
In short, the net cash flow from operating activities represents the differenc
