Cash flow statement.
In plain English
A cash flow statement reconciles net income to the change in cash, showing how much money the business actually generated or burned during the period. Operating activities cover cash from the core business, after adjusting for non-cash items like depreciation and for changes in working capital. Investing activities cover buying and selling long-lived assets and securities. Financing activities cover borrowing, repaying debt, issuing stock, buybacks, and dividends. A company can post accounting profit and still run out of cash, and this is the statement that shows it happening.
01Why it matters
Profit is an opinion built from accounting rules and cash is a fact, so this is the statement that tells you whether a business can pay its people next month.
02The math, step by step
Say net income is 50,000 dollars, depreciation adds back 20,000 dollars, and accounts receivable grow by 35,000 dollars. Operating cash flow is 35,000 dollars (50,000 plus 20,000 minus 35,000), well under the reported profit, because customers have not paid yet.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
It is not a restated profit report. The income statement measures earned revenue against matched costs. This one measures money that actually moved. The first section exists precisely to bridge the two, line by line, so you can see where profit and cash parted ways.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
Educational tool. Answers come only from ClearMoneySchool's published glossary and are not advice. Why we never give advice