Topic 3.8 · The Cash Flow Statement
The Cash Flow Statement
Cash inflows and outflows, why profitable businesses can still run out of cash, and how stakeholders use cash flow information.
15 min read Reviewed
Learning objectives
- 3.8.ADetermine and describe components of a business’s cash flow statement.
- 3.8.BExplain how a business’s stakeholders use cash flow statement information.
Objective statements © College Board, quoted from the Course and Exam Description.
Profit and cash are not the same thing. A business can be profitable on paper and still be unable to pay its bills if customers pay late or big purchases drain its cash. The cash flow statement tracks how cash inflows and outflows change the cash balance over a period.
| Cash inflows (+) | Cash outflows (−) |
|---|---|
| Payments from customers | Payments to employees and suppliers |
| Interest or dividends earned on investments | Interest paid on loans |
| Proceeds from selling assets | Taxes paid |
| New financial capital (e.g., a new loan) | Purchases of assets |
| Debt repayment and dividends |
Key terms
- Cash flow statement
- Shows how cash inflows and outflows change a business's cash balance over a period.
- Cash inflow
- Cash coming in: customer payments, interest or dividends earned, proceeds from selling assets, new loans or investment.
- Cash outflow
- Cash going out: wages, supplier payments, interest, taxes, asset purchases, debt repayment, dividends.
- Negative cash flow
- Outflows exceed inflows for a period, which reduces the cash balance.
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