Series 7: 9.4.1.3. Cash Flow Statement

9.4.1.3. Cash Flow Statement

The cash flow statement records how much cash a firm is generating, where the cash comes from, and how it leaves the firm by being spent. Like the income statement, the cash flow statement covers a period of time (unlike the balance sheet, which provides a snapshot of a moment in time). It differs from an income statement in that it does not include non-cash entries, such as depreciation expenses, and it does include capital expenditures and changes in inventory, accounts receivable, and accounts payable.

The cash flow statement is divided into three sections. The “Cash Flows from Operating Activities” section deducts noncash activity from net income as reported on the income statement, including the increase or decrease in accounts receivable, accounts payable, and inventory from the previous period. An increase in accounts receivable, for example, reduces cash on hand because it reflects sales made on credit that have not yet been converted to c