what is cash flow statement

A cash flow statement is a financial statement that shows how cash enters and exits a company during a specific period. It is one of the three fundamental financial statements, along with the income statement and balance sheet. The cash flow statement is important because it reveals the quality of a companys earnings, how much came from cash flow as opposed to accounting treatment, and the firm's capacity to pay interest and dividends. The statement is typically broken down into three sections: operating activities, investing activities, and financing activities. The cash flow statement differs from the balance sheet and income statement in that it excludes non-cash transactions required by accrual basis accounting, such as depreciation, deferred income taxes, write-offs on bad debts, and sales on credit. The cash flow statement is a valuable tool for managing finances by tracking the cash flow for an organization. It shows the source of cash and helps monitor incoming and outgoing money, informs about cash outflows, expenses paid for business activities, and investment at a given point in time. The information that you get from the cash flow statement is beneficial for the management to take informed decisions for regulating business operations.