Three groups of cash movements
The statement lists every cash inflow and outflow for the period and sorts each one into a group. Operating activities cover day-to-day trading: cash collected from customers, and cash paid to suppliers, staff, rent and taxes. Investing activities cover buying or selling equipment, vehicles or buildings. Financing activities cover borrowing, repaying loans and money moving between the business and its owners.
The three totals add up to the change in cash for the period. Added to the opening balance, they should equal the closing cash on the balance sheet, which is a useful check that the books are complete. BDC notes that it is usually prepared annually but can be produced monthly or quarterly.
An illustrative example
Assume, for illustration, that a business reports net income of $30,000 for the year. Depreciation of $5,000 reduced that profit without using cash, so it is added back. Customers owe $8,000 more than a year ago, so that part of the profit has not been collected. Cash from operating activities is $27,000.
The business then pays $15,000 for equipment, an investing outflow. It repays $6,000 of a loan and pays owners $4,000, which are financing outflows. The net change in cash is $2,000 ($27,000 less $15,000 less $10,000). Profit of $30,000 produced a $2,000 increase in cash, and the statement shows where the rest went.
Direct and indirect presentation
The direct method lists actual cash received and paid, and BDC calls it the more straightforward of the two. The indirect method starts with net income and adjusts for non-cash items and changes in balances such as receivables and payables, as in the example above. Both methods arrive at the same cash figure.
Classification can depend on the accounting framework. BDC notes that under Accounting Standards for Private Enterprises, the standard BDC says most of its clients use, dividends paid are a financing activity, while under IFRS a company can choose between operating and financing.
What to discuss with your accountant
A cash flow statement is not automatically part of every set of year-end financial statements. BDC points out that a compilation engagement does not include one, while a review engagement or a more in-depth level of reporting does. Ask what your package contains and whether one is useful for a lender or for your own planning.
Bring reconciled bank statements, loan statements and a list of equipment purchases and owner withdrawals, because misclassified items distort the groups. Then ask for a dated forecast as well. The statement explains the past, and it cannot show whether next month’s payroll is covered.
Sources & editorial notes
Sources checked October 24, 2026. The examples are illustrative and provide general information. Discuss how the guidance applies to your circumstances with your accountant.
Rules and guidance can change. Use the current official source and confirm the treatment for your facts. To flag an error, contact Sora.