The cash flow statement tracks cash entering and leaving a company over a specific period, such as a quarter or fiscal year. It divides those movements into operating, investing, and financing activities. The net change across all three sections reconciles the company’s beginning cash balance to its ending cash balance.
This statement matters because net income is not the same as cash flow. The income statement follows accrual accounting, which generally recognizes revenue when earned and expenses when incurred—not necessarily when cash changes hands. A company can therefore report a profit while consuming cash, or report a loss while generating cash.