Finance

How to Create a Cash Flow Statement (With Examples)

Learn how to build a cash flow statement that improves cash visibility, supports better financial decisions, and builds economic security for your organization

Blaise Radley

Editorial Strategist

Workday

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In this article we discuss:

Cash flow is the most direct lens for understanding business liquidity and cash position. Yet despite its importance and longstanding role as a core finance metric, many organizations struggle with cash flow management. In fact, companies are three times more likely to miss cash flow forecast targets than revenue forecast targets.

An accurate and well-structured cash flow statement is the first step to closing the gap. It brings operating, investing, and financing activity into a single, cash-based snapshot, making it easy to see what’s driving movement in cash during a specific period or moment in time.

Companies are 3x more likely to miss cash flow targets than revenue targets.

What Is a Cash Flow Statement?

A cash flow statement shows how cash moves into and out of a business. Unlike the income statement (which reflects revenue and expenses under accrual accounting) or balance sheet (which captures a point-in-time snapshot) the cash flow statement focuses squarely on liquidity.

A good statement of cash flow translates operating activity, investment decisions, and financing choices into actual cash impact, making it an essential tool for understanding financial flexibility. Cash movement is organized on the financial statement in three sections, each highlighting a different dimension of finance operations:

Operating activities: Cash generated or used by core operations, including changes in receivables, payables, non-cash expenses, and day-to-day operating expenses that determine when revenue and costs actually turn into cash
Investing activities: Cash tied to long-term investments such as capital expenditures, acquisitions, and asset sales, showing how the company allocates capital to support future growth
Financing activities: Cash flows related to debt, equity, and distributions, revealing how the business funds operations and returns capital to lenders or shareholders

Together these show not just how cash changed over a certain period but what actually drove those changes, providing a basis for analyzing the amount of cash movement and its broader implications for the business.

How to Create a Cash Flow Statement

In order to create a cash flow statement, it’s important that your business follows a structured template and methodology. You can create a cash flow statement using either the direct or indirect methods:

The direct method lists specific cash inflows and cash outflows from operating activities, such as cash receipts from customers and cash paid to suppliers and employees.
The indirect method begins with net income (or profit before tax) and adjusts for non-cash items and changes in working capital to reconcile net profit to cash generated from operations.

The steps below follow the indirect method, which is the most commonly used approach and aligns with accrual-based financial reporting:

Anchor the Statement
Build the Operating Activities Section
Add Investing Activities
Add Financing Activities
Reconcile the Net Change in Cash

Step 1: Anchor the Statement

Start by pulling the company’s cash balance at the beginning and end of the period from the balance sheet. These figures define the scope of the statement and act as the final reconciliation check.

Example: A company begins the quarter with $250,000 in cash and ends the quarter with $310,000. The cash flow statement must explain a $60,000 increase in cash through operating, investing, and financing activities.

Step 2: Build the Operating Activities Section

This next phase converts accrual-based accounting results into a clear picture of cash-based reality. Start with net income and apply adjustments to account for actual cash movement from day-to-day business operations. These adjustments typically involve adding back non-cash expenses, like depreciation, and accounting for changes in working capital.

Example: The company reports $95,000 in net income for the quarter. Adjustments include:

Depreciation expense (+$20,000): A non-cash expense that reduced net income but did not use cash
Increase in accounts receivable (–$15,000): Revenue recognized but not yet collected in cash
Increase in inventory (–$10,000): Cash spent on inventory not yet sold
Increase in accounts payable (+$25,000): Expenses incurred but not yet paid in cash

After applying these adjustments, net cash from operating activities totals $115,000, showing how core operations contributed to cash during the period.

Step 3: Add Investing Activities

Next, include cash flows related to long-term investments rather than daily operations. These amounts are recorded as direct cash inflows or outflows.

Example: During the quarter, the company:

Spends $70,000 on equipment and systems
Receives $10,000 from the sale of an older asset

This results in $60,000 of cash used in investing activities, reflecting how capital allocation decisions affected cash.

Step 4: Add Financing Activities

The financing section shows how the business funds itself and returns capital. These entries are separated from operations to isolate capital structure decisions.

Example: During the quarter, the company:

Borrows $25,000
Repays $10,000 of existing debt
Pays $10,000 in dividends

This results in $5,000 of net cash from financing activities.

Step 5: Reconcile the Net Change in Cash

Finally, total the cash flows from all three sections and confirm that they reconcile to the change identified in Step 1.

Example: The totals from the prior three sections are as follows:

Operating activities: + $115,000
Investing activities: – $60,000
Financing activities: + $5,000
Net change in cash: + $60,000

When added to the beginning cash balance of $250,000, this reconciles exactly to the ending balance of $310,000.

Cash Flow Statement Example

The example below demonstrates how the indirect method reconciles net income to the final change in cash position by categorizing every transaction into its respective business impact.

Understanding the specific sections of the cash flow statement, such as operating, investing, and financing, is essential for analyzing the amount of cash movement and its broader implications for the business.

Finance teams are investing in AI tools that make core metrics like cash flow more timely and usable.

How Finance AI Delivers Real-Time Insight

Cash flow statements have traditionally been retrospective documents—accurate, but inherently lagging. That model made sense when finance operated in fixed cycles. But as planning, forecasting, and risk management have become more continuous, cash flow is increasingly expected to function as a live indicator of liquidity.

Finance AI tools are driving the change, and finance leaders are recognizing the impact. Workday research shows that better decision-making is the top driver of AI adoption in finance, reinforcing why finance teams are investing in tools that make core metrics, like cash flow, more timely and usable.

In practice, AI tools change how cash flow is managed by enabling:

Shorter visibility cycles: Cash positions can be refreshed continuously rather than reconstructed at period close.
Earlier signal detection: Working capital shifts and cash pressure surface sooner, not after the fact.
Closer integration with planning: Cash flow is reviewed alongside forecasts and operating plans, not separately.
More usable confidence: Reduced reconciliation friction makes cash data reliable enough for near-term decisions.

While the fundamental mechanics of the cash flow statement remain unchanged, the way finance teams utilize this data is undergoing a significant transformation. Traditionally a retrospective and lagging document, the cash flow statement is evolving into a live indicator of liquidity that supports continuous planning and risk management while maintaining an organization’s financial health.

With AI-driven financial analysis, organizations can move beyond the friction of manual reconciliation and period-close reconstructions. These modern systems enable shorter visibility cycles and earlier signal detection, allowing finance leaders to spend less time assembling data and more time informing critical capital decisions.

Ultimately, building a robust, accurate cash flow statement and augmenting it with real-time insights is the key to closing the gap between forecast targets and financial reality.

Finance leaders are facing increased expectations from both internal and external stakeholders. Download this report to uncover the top five reasons CFOs are moving to Workday to optimize their finance operations.

About the Author

Blaise Radley Editorial Strategist Workday

Blaise Radley is an editorial strategist for Workday. He covers topics including future of work, employee experience, and medium enterprise.

Blaise has more than ten years of experience in content marketing and journalism. In that time, he’s worked for a large variety of organizations, covering everything from Jaguar Land Rover to the latest independent film releases.

He holds a bachelor’s degree in English and American Literature from the University of Birmingham. If he’s not writing, he’s likely at the cinema.

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