Intermediate level · Module 1: Balance Sheets and Cash Flow Statements · Lesson 3 of 3
The Statement of Cash Flows
Explain how cash changed through operating, investing and financing activities.
In this lesson you will
- Prepare a simple statement of cash flows
- Link the three financial statements
Key concepts
operating activitiesinvesting activitiesfinancing activitiesreporting frameworks
The lesson
The statement of cash flows groups cash movements into operating (trading), investing (buying or selling equipment) and financing (loans, owner capital).
It explains the change from opening to closing cash, and the closing cash must match the balance sheet.
Larger organisations prepare statements under a reporting framework; the IFRS for SMEs Accounting Standard, published by the IFRS Foundation, is designed for smaller entities that do not have public accountability.
Step by step
- Classify cash movements into the three groups.
- Total each group.
- Reconcile opening to closing cash.
- Check closing cash against the balance sheet.
Practice activity
Prepare the statement of cash flows and check the links between statements.
Expected result: A statement of cash flows that agrees with the balance sheet.
Check your understanding
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Is buying a vehicle an operating, investing or financing cash flow?
Show answer
Investing.
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Which balance sheet figure must match the cash flow statement?
Show answer
Closing cash.
Taught live by an instructor — online or in person. Free course lessons are for self-study and do not lead to a certificate — see registration options.