We have all heard that “Cash is King,” but nothing in life is stagnant. Simply having cash is not the goal. For all of us, businesses, nonprofits, personal, the goal is to have the cash coming in exceed the cash going out. No matter what stage of life we are in and our specific situation, we should have cash in and cash out. The statement of cash flows identifies the cash in and cash out in three distinct areas over a specified period of time. 

The three areas covered in the Statement of Cash Flows are:

• Operations
• Investments
• Financing

In simple terms, the operations section is cash in from sales and receivables, less expenses, payables, and depreciation. The net change is your cash flow from operations. If you are using the accrual method of accounting (as almost everyone should), the Statement of Cash Flows will convert the accrual basis to cash basis in order to see actual cash in and out. This is why the Income statement and the Statement of Cash Flows may not match for the same time period. 

The cash flow from investments is the movement of cash through your company or organization as assets are purchased or sold. If you sell some land and buy a truck, this would be recorded in the investments. You may have seen this as PP&E, or Property, Plant and Equipment. 

Financing cash flow measures the movement of cash related to issuance and purchase of company stock and bonds, payment of dividends, and the borrowing and repayment of debt through short and long-term bank notes and other debts. 

A Statement of Cash Flows report has the cash at the beginning of the period (month, quarter, year, etc. ). This line is followed by the Operations, Investments and Financing sections. At the bottom of the report should be a line to show net change and the new total cash position. While quite simple in its setup and use, the Statement of Cash Flows is often overlooked for many business owners. However, the insight provided by this report can prove invaluable for making sound fiscal decisions for the business.