What Goes on a Cash Flow Statement (With an Example)

Operating activities

Operating cash flow covers cash from running the business: customer receipts, payments to suppliers and employees, rent, interest and taxes.

Start with net income and adjust for items that did not involve cash. Add back depreciation. Subtract increases in receivables and inventory, because that profit is stuck in unpaid invoices or stock. Add increases in payables, because you have not yet paid those bills.

Healthy businesses generate positive operating cash flow over time.

Investing activities

Investing covers buying or selling long-term assets such as equipment, vehicles, property and long-term investments.

Buying a $30,000 machine is a cash outflow under investing. Selling an old vehicle for $8,000 is an inflow. These items do not appear on the income statement as expenses (except through depreciation), but they absolutely affect your cash.

Financing activities

Financing covers cash from borrowing and owner investment, and cash out for loan principal repayments and owner draws.

A $50,000 loan received is an inflow. Principal paid on that loan is an outflow. Interest usually sits in operating activities. Owner contributions are inflows; distributions are outflows.

An illustrative example

Operating +$18,000, investing -$30,000 and financing +$20,000 produce a net cash change of +$8,000.

Why profit and cash differ

The statement bridges profit and cash by showing timing differences, asset purchases and debt movements.

In the example, profit was $12,000 but operating cash was $18,000, because bills were not yet paid. Cash can also fall while profit rises, if receivables and inventory grow quickly. That is a common trap for growing businesses. Read cash flow vs. profit and common cash flow problems.

Direct vs. indirect method

The direct method lists actual cash receipts and payments. The indirect method starts with net income and adjusts it. Most small businesses use indirect.

Indirect is easier because your accounting system already holds net income and balance sheet changes. Direct is more intuitive but needs detailed cash tracking. Accounting software can generate either.

Common cash flow statement mistakes

Misplacing loan principal, double-counting depreciation, and ignoring balance sheet changes cause most errors.

Loan principal repayments belong in financing, not operating. Depreciation is added back only once. Changes in receivables, inventory and payables must follow the right sign: a rise in receivables reduces cash, a rise in payables increases it.

Always check the final line. Beginning cash plus the net change must equal ending cash on your balance sheet. If it does not, something was missed or entered with the wrong sign. Software usually does this correctly when the books are clean, so most errors trace back to uncategorized transactions.

Reading the result in plain language

Positive operating cash flow means the business funds itself. Negative operating cash flow means it is relying on borrowing or savings.

In the example, the business generated $18,000 from operations, spent $30,000 on equipment and borrowed $20,000. That is a healthy pattern if the equipment will raise future profit, because operations covered a good share of the purchase. If operating cash flow were negative while financing was positive, the business would be borrowing to stay afloat, which deserves a hard look at pricing, costs and collections.

Using the statement for planning

Use past cash flow statements to build a forecast, then test whether a new payment would fit.

See cash flow forecasting and the cash flow projection template. If a financing offer adds a monthly payment, check that operating cash flow covers it with room to spare. Our stress test for payments if revenue drops shows how. ROI Funder considers 500+ FICO, 6+ months in business and $20,000+ monthly revenue.