Cash flow statement
A cash flow statement tracks the cash moving in and out of your business, showing your real liquidity.
Published Monday 17 August 2026
Table of contents
Key takeaways
- A cash flow statement tracks all cash entering and leaving your business over a specific period, giving you a clear picture of liquidity that a profit and loss statement alone cannot provide.
- The statement is divided into operating activities, investing activities and financing activities, with net movement across these categories determining your closing cash balance.
- In Indonesia, formal cash flow statement requirements are governed by PSAK 2, though micro and small entities using SAK EMKM are not required to present one.
- Understanding cash flow helps you spot warning signs early, plan for upcoming expenses and make confident decisions about growth.
What is a cash flow statement?
A cash flow statement is a financial report that shows how cash moves into and out of your business over a set period. It is also called a statement of cash flows, or in Indonesia, a laporan arus kas.
While a profit and loss statement shows whether your business made a profit on paper, it does not reveal whether you actually have money in the bank. A cash flow statement fills that gap by tracking actual cash movements rather than accrued revenues and expenses.
What does a cash flow statement show?
A cash flow statement provides a structured view of your business's liquidity by showing where cash comes from and where it goes. This helps you understand whether you have enough funds to pay bills, invest in growth or weather unexpected costs.
The statement typically shows:
- opening cash balance at the start of the period
- cash received from customers and other income sources
- cash paid to suppliers, employees and for other expenses
- net cash movement from operating activities
- net cash movement from investing activities
- net cash movement from financing activities
- closing cash balance at the end of the period
Who uses a cash flow statement?
Cash flow statements serve different purposes depending on who is reading them. Here are the main groups that rely on this report:
- Business owners and managers: use the statement to monitor day-to-day liquidity, plan for expenses and decide when to pursue growth opportunities.
- Investors and lenders: review cash flow to assess whether a business can repay loans or generate returns, since profitability alone does not guarantee cash availability.
- Accountants and bookkeepers: prepare and analyse cash flow statements to provide accurate financial advice and ensure compliance with reporting standards.
The 3 parts of a cash flow statement
A cash flow statement is organised into three main sections, each capturing a different type of cash movement. Together, they show how your business generates and uses cash across all its activities.
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Operating activities
Operating activities cover the cash generated or used by your core business operations. This section reflects the day-to-day transactions that keep your business running.
Common items include:
- cash received from sales
- payments to suppliers
- wages and salaries
- tax payments, including PPN (value-added tax)
- interest paid or received
Investing activities
Investing activities track cash spent on or received from long-term assets. This section shows how you are building or disposing of the resources your business uses over time.
Examples include purchasing equipment, buying property or selling investments. A negative figure here often signals growth, as you are investing in assets that will generate future returns.
Financing activities
Financing activities record cash flows related to funding the business. This section captures how you raise capital and return it to stakeholders.
Common items include taking out loans, repaying debt, issuing shares or paying dividends. Positive cash flow from financing might indicate new investment, while negative cash flow could mean you are paying down debt or returning funds to owners.
What are cash equivalents?
Cash equivalents are short-term, highly liquid investments that can be converted to cash quickly with minimal risk of value change. They are grouped with cash on the statement because they function almost identically to cash for practical purposes.
Examples include short-term deposits and money-market holdings. These assets are typically held for three months or less and provide a small return while keeping funds accessible.
Net movement and closing cash balance
The net movement figure combines the cash flows from all three activities to show the overall change in your cash position. This number tells you whether your business generated or consumed cash during the period.
Your closing cash balance is calculated by adding the net movement to your opening cash balance. If the closing balance is higher than the opening balance, your business ended the period in a stronger cash position than it started.
How cash flow is calculated
Cash flow can be calculated using two different methods. Both arrive at the same result, but they take different paths to get there. The method you choose affects how the operating activities section is presented.
Direct method vs indirect method
The direct method lists actual cash receipts and payments during the period. It shows specific line items such as cash received from customers and cash paid to suppliers. This approach gives a clear, transaction-by-transaction view of where cash came from and where it went.
The indirect method starts with net profit from your income statement and adjusts for non-cash items and changes in working capital. It reconciles accrual-based profit to actual cash flow by adding back depreciation, adjusting for changes in receivables and payables, and accounting for other non-cash charges.
Many Indonesian small businesses use the indirect method because it is simpler to prepare from existing accounting records. In Indonesia the cash flow statement is governed by PSAK 2 (Laporan Arus Kas), part of the Standar Akuntansi Keuangan (SAK) issued by DSAK IAI.
Cash flow statement vs income statement vs balance sheet
These three financial statements work together to give you a complete picture of your business's financial health. Each one answers a different question about your finances.
- Cash flow statement: shows how cash moves in and out of your business over a period, revealing your actual liquidity position regardless of paper profits.
- Income statement: shows revenue, expenses and profit over a period, indicating whether your business is profitable on an accrual basis.
- Balance sheet: shows what your business owns and owes at a single point in time, providing a snapshot of assets, liabilities and equity.
Cash flow vs profit
Profit and cash flow are related but distinct concepts. Understanding the difference helps you avoid situations where your business looks healthy on paper but struggles to pay its bills.
Profit measures revenue minus expenses according to accounting rules, which recognise income when earned rather than when collected. Cash flow tracks actual money entering and leaving your bank account. This gap matters because you can be profitable on paper while being short of cash if customers pay late or expenses come due before payments arrive.
For example, if you invoice a customer for Rp50,000,000 today, your profit includes that amount immediately. But until the customer pays, your cash position remains unchanged. Accounts receivable builds up while your bank balance stays flat.
Positive vs negative cash flow
Your cash flow can be positive or negative in any given period. Neither is automatically good or bad, as the context matters.
Positive cash flow
Positive cash flow means more cash entered your business than left it during the period. This typically indicates your operations are generating enough to cover expenses, with funds available for growth, debt repayment or savings.
Consistent positive cash flow gives you flexibility and reduces reliance on external funding. It also provides a buffer against unexpected costs or slow periods.
Negative cash flow
Negative cash flow means more cash left your business than came in. This is not always a problem, as it could reflect planned investments in equipment or inventory that will generate future returns.
However, sustained negative operating cash flow warrants attention. It may signal that customers are paying too slowly, expenses are too high, or pricing needs adjustment.
How to read a cash flow statement
Reading a cash flow statement becomes easier when you follow a structured approach. These steps help you extract useful insights from the numbers.
Start with these practical steps:
- compare the opening and closing cash balances to see whether overall cash increased or decreased
- check whether operating activities generated positive cash flow, as this shows your core business is sustainable
- review investing activities to understand how you are deploying capital for growth
- examine financing activities to see how debt and equity are changing over time
- compare the cash flow statement to your income statement to spot differences between profit and actual cash
Watch for these warning signs:
- operating cash flow is consistently negative while profit looks healthy
- receivables are growing faster than sales, indicating collection problems
- cash from financing is funding day-to-day operations rather than growth
- closing cash balance is declining period after period
Cash flow statement example
Here is a sample cash flow statement for a fictional Jakarta graphic design studio for the quarter ending 31 March 2026. This example shows how the three sections combine to calculate the closing cash balance.
Operating activities
- Cash received from clients: +Rp450,000,000
- Payments to suppliers: −Rp80,000,000
- Staff wages: −Rp180,000,000
- PPN payment: −Rp32,000,000
- Office rent: −Rp45,000,000
Net cash from operating activities: +Rp113,000,000
Investing activities
- Purchase of new computer equipment: −Rp35,000,000
Net cash from investing activities: −Rp35,000,000
Financing activities
- Loan repayment: −Rp20,000,000
Net cash from financing activities: −Rp20,000,000
Summary
- Opening cash balance: Rp120,000,000
- Net cash movement: +Rp58,000,000
- Closing cash balance: Rp178,000,000
This studio's core operations generated Rp113,000,000, comfortably covering the equipment purchase and loan repayment. The closing balance of Rp178,000,000 is higher than the opening balance of Rp120,000,000, indicating the business ended the quarter in a stronger cash position than it started.
Cash flow reporting standards in Indonesia
Indonesia has its own financial reporting framework that determines when and how businesses present cash flow statements. Understanding these requirements helps you stay compliant while gaining useful financial insights.
PSAK 2 (Laporan Arus Kas), part of the Standar Akuntansi Keuangan (SAK) issued by DSAK IAI, governs the presentation of cash flow statements for Indonesian businesses. This standard outlines how to classify cash flows and what disclosures are required.
Micro and small entities reporting under SAK EMKM (Standar Akuntansi Keuangan Entitas Mikro, Kecil dan Menengah) are not required to present a cash flow statement. Under SAK EMKM, the required financial statements are a statement of financial position, an income statement and notes to the financial statements. However, preparing a cash flow statement voluntarily can still provide valuable insights into your liquidity position.
Keeping accurate digital records also helps with tax administration through the Directorate General of Taxes (DJP) and its Coretax DJP system. Well-organised accounting data makes tax filing more straightforward and reduces the risk of errors.
Why cash flow statements matter for your business
A cash flow statement is one of the most practical tools for understanding your business's financial health. Here is why it deserves regular attention.
- Reveals your true liquidity position rather than relying on profit figures that may not reflect available cash
- Helps you plan for upcoming expenses such as tax payments, payroll or equipment purchases
- Identifies cash shortfalls early so you can arrange financing or adjust spending before problems arise
- Supports better decision-making about when to invest, hire or expand
- Provides lenders and investors with confidence in your ability to meet obligations
- Highlights collection issues when accounts receivable builds up while cash remains flat
Late customer payments are a common cash flow pressure, and the gap between issuing an invoice and being paid is exactly where a cash flow statement earns its keep. By tracking this information regularly, you can spot trends and take action before minor delays become major problems.
Understanding your financial statements as a connected set, rather than viewing each in isolation, helps you manage cash flow with greater confidence.
Take control of your cash flow with Xero
Xero accounting software makes it easy to track cash flow alongside your other financial reports. With automated bank feeds and real-time data, you always know where your cash stands without manual calculations or guesswork. Try Xero for your business and get one month free.
FAQs on cash flow statements
Here are answers to common questions about cash flow statements.
What is the difference between cash flow and profit?
Profit measures revenue minus expenses according to accounting rules, while cash flow tracks actual money entering and leaving your bank account. You can show a profit on your income statement while having little cash available because of timing differences between when income is recorded and when payment is received.
Can a profitable business have negative cash flow?
Yes. A business can be profitable on paper while experiencing negative cash flow if customers are slow to pay, inventory levels are high, or significant investments are being made in equipment or growth. The timing mismatch between accrual accounting and actual cash movements creates this gap.
Do small businesses in Indonesia need to produce a cash flow statement?
Micro and small entities reporting under SAK EMKM are not required to present a cash flow statement. However, preparing one voluntarily provides useful insights into your liquidity position and can help you manage your business more effectively.
How often should you review your cash flow statement?
Monthly reviews are a good practice for most small businesses, as they help you spot trends and address issues before they become serious. More frequent reviews may be helpful during periods of rapid growth, seasonal fluctuations or financial uncertainty.
What's the easiest way to track cash flow?
Cloud accounting software automates much of the work by pulling in bank transactions, categorising them and generating reports. You can run financial reports in a few clicks rather than building spreadsheets manually, saving time and reducing errors.
Related terms
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.