The Cash Flow Statement, Simply Explained

The cash flow statement tracks actual cash moving in and out of a company over a period of time — not accounting profit, but real money hitting or leaving the bank account. It's organized into three sections: cash from operating activities (the core business), investing activities (buying or selling long-term assets), and financing activities (borrowing, repaying debt, or paying dividends).

Brightleaf's operating activities start with net income and adjust for non-cash items like depreciation, plus changes in things like receivables and payables. Investing activities capture the $60 million it spent on new equipment. Financing activities capture debt repayment and dividends paid to shareholders. Adding all three sections together gives the total change in cash for the period.

Cash from Operating Activities        $95M
Cash from Investing Activities        -$60M
Cash from Financing Activities        -$25M
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Net Change in Cash                     $10M

Beginning Cash Balance                 $40M
Ending Cash Balance                    $50M

The cash flow statement is organized into operating, investing, and ____ activities.

Why does this statement exist at all, if the income statement already shows profit? Because profit and cash are not the same thing, for reasons the next lesson explores in detail. A company can report a healthy net income and still run low on actual cash — or the reverse. The cash flow statement is often considered the hardest of the three statements to fake, since cash either moved or it didn't.

Which of the following is NOT one of the three sections of the cash flow statement?

The cash flow statement tracks the same thing as the income statement — accounting profit.