Statement of cash flows
In one sentenceA statement showing where cash came from during the period and where it went, divided into operating, investing and financing activities, ending with the cash balance at the end of the period.
Simply put
The income statement tells you whether you made a profit, and the statement of cash flows tells you where the cash is. It starts with the cash balance at the beginning of the period, adds the net of each of the three activities, and arrives at the balance at the end.
It is the best tool for understanding a question business owners keep asking: why do I make a profit and find no cash in the account?
Worked example
A trading business started the year with cash of 70,000 SAR. Its net operating flow was 90,000 SAR, it spent 260,000 SAR on investment, and it obtained net financing of 300,000 SAR.
Net operating cash flow90,000
Net investing cash flow(260,000)
Net financing cash flow300,000
Net change in cash130,000
Cash at the start of the year70,000
Cash at year end = 70,000 + 130,000200,000 SAR
Formula: Opening cash + operating + investing + financing = closing cash
Don't confuse it with
Income statementThe income statement is on the accrual basis and ends with profit, while cash flows are on the cash basis and end with the cash balance.