Cash flow statement
Learn what a cash flow statement shows, how to prepare and read one, and when Irish companies need one.
Published Wednesday 30 September 2026
Table of contents
Key takeaways
- A cash flow statement tracks the cash moving in and out of your business over a set period, so you can see whether you can cover your costs
- It sorts every cash movement into operating, investing and financing activities, and operating cash flow is the clearest sign of health
- Small Irish companies can choose whether to prepare one, while medium and large companies generally need one in their annual financial statements
- Reviewing it regularly helps you plan for VAT payments to Revenue, chase slow payers and make confident spending decisions
What is a cash flow statement?
A cash flow statement is a financial report that shows how much cash moves in and out of your business over a set period. It’s also called a statement of cash flows.
A profit and loss statement includes non-cash items like depreciation. A cash flow statement tracks only the money you actually receive and spend, so it shows whether you can pay your bills and fund growth.
Think of it as your business bank statement, sorted into groups that explain why the balance went up or down.
What does a cash flow statement show?
A cash flow statement shows where your cash came from and where it went during the period. It gives you a clear view of your business’s liquidity.
It covers cash and cash equivalents, which are short-term, highly liquid investments that typically mature within three months. Specifically, it shows:
- how much cash your day-to-day operations generate
- what you’ve spent on long-term assets like equipment or property
- how you fund the business, whether through loans or owner contributions
- your opening balance, the net movement and your closing balance
Together, these figures show whether your business pays its own way or leans on borrowing.
Who uses a cash flow statement?
Business owners, lenders, investors and accountants all use cash flow statements to make decisions about your business. Each group looks for something slightly different.
- Business owners use it to plan budgets and spot cash shortfalls early
- Banks use it to judge whether you can keep up loan repayments
- Investors use it to see whether the business can generate a return
- Accountants and bookkeepers use it alongside your other statements to assess your financial health
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The 3 parts of a cash flow statement
Every cash flow statement has three sections: operating, investing and financing activities. Together they explain how your cash position changed during the period.
Operating activities
Operating activities show whether your core business generates enough cash to keep running. This section covers cash received from customers and cash paid for everyday costs.
Common items in this section include:
- cash received from sales
- payments to suppliers
- wages and salaries
- value-added tax (VAT) payments to Revenue
- interest paid or received
Consistently positive operating cash flow means your day-to-day work covers its own running costs.
Investing activities
Investing activities record cash spent on or received from long-term assets. These are the bigger purchases and sales that shape your business over time.
Typical investing activities include:
- buying equipment or vehicles
- buying or fitting out premises
- selling a business asset
- buying or selling investments
Negative investing cash flow often means you’re putting money into growing your business.
Financing activities
Financing activities show how your business is funded. This section covers loans, debt repayments, owner contributions and dividends.
Common financing activities include:
- taking out a business loan
- repaying a loan or credit facility
- putting owner funds into the business
- paying dividends to shareholders
Financing works best when it funds growth. If you regularly borrow to cover operating losses, talk to your accountant about the cause.
What to include in a cash flow statement
A complete cash flow statement shows your cash position at the start and end of the period, plus every movement in between. It includes:
- the reporting period it covers
- your opening balance of cash and cash equivalents
- net cash from operating activities
- net cash from investing activities
- net cash from financing activities
- the net increase or decrease in cash
- your closing balance of cash and cash equivalents
Your closing balance should match the cash and cash equivalents on your balance sheet at the end of the period.
Direct method vs indirect method
You can prepare the operating activities section using the direct method or the indirect method. Both arrive at the same net cash from operating activities by different routes.
The direct method lists actual cash receipts and payments, such as money in from customers and money out to suppliers. It’s detailed and easy to follow, but it takes longer to prepare.
The indirect method starts with net profit and adjusts for non-cash items and changes in working capital. For example, it adds back depreciation and adjusts for movements in trade debtors and creditors.
International Accounting Standard 7 (IAS 7) permits both methods. Most small businesses choose it because it’s simpler to prepare from existing accounting records.
In Ireland, most companies that don’t use International Financial Reporting Standards (IFRS) prepare accounts under Financial Reporting Standard 102 (FRS 102). FRS 102 is the accounting standard that applies in the Republic of Ireland, and it allows either method.
Larger and listed companies reporting under IFRS have a change coming. From 1 January 2027, IFRS 18 amends IAS 7 so the indirect method starts from operating profit or loss.
How to prepare a cash flow statement in 5 steps
Most small businesses prepare a cash flow statement with the indirect method. Follow these five steps using your accounting records for the period.
1. Gather your financial records
Pull together your income statement for the period and your balance sheets from the start and end. You’ll also need details of any asset purchases, asset sales, loans and repayments.
2. Start with net profit and add back non-cash items
Take net profit from your income statement and add back non-cash expenses such as depreciation. These costs reduce profit without taking cash out of your bank account.
3. Adjust for working capital movements
Subtract any increase in trade debtors or stock, and add any increase in trade creditors. Reverse these adjustments when balances fall; the result is your net cash from operating activities.
4. Add investing and financing cash flows
List cash spent on or received from long-term assets under investing activities. Then record loans received, repayments, owner contributions and dividends under financing activities.
5. Calculate the net change and check your closing balance
Add the three section totals to get your net increase or decrease in cash. Then add that figure to your opening balance. The result should match the cash on your closing balance sheet; if it differs, look for missing or misclassified transactions.
Positive vs negative cash flow
Positive cash flow means more cash came in than went out during the period, and negative cash flow means more went out. Read either result alongside where the cash came from.
Positive cash flow is generally a healthy sign. It means you can cover your costs and build a buffer for quieter months.
Check the source, though. A large loan creates a cash inflow today and a repayment to plan for later.
Profit and cash can also tell different stories. Profit uses accrual accounting, which records income when you earn it, often before the cash arrives.
Negative cash flow often reflects planned investment, such as new equipment or fitting out premises. The trend matters most: several periods of negative operating cash flow point to a deeper issue worth investigating.
How to read a cash flow statement
Start with operating cash flow, because it shows whether your core business pays its own way. Then check how investing and financing activities changed your balance.
Work through these checks when you review the numbers:
- Check whether operating cash flow is positive
- Compare operating cash flow across several periods to spot a steady decline
- Look at investing activities, where large outflows often reflect growth spending
- Review financing activities to see whether loans are covering everyday costs
Some patterns are worth a closer look when they repeat over several periods:
- Operating cash flow falling quarter after quarter
- Borrowing often to cover everyday expenses
- Selling assets to pay running costs
- Cash receipts falling while sales hold steady
If you spot any of these, talk to your accountant about the underlying causes. You can also track liquidity ratios to see how comfortably you can meet short-term bills.
Cash flow statement vs income statement vs balance sheet
Your cash flow statement is one of three core financial statements. Each answers a different question, and together they give you the full picture.
- A cash flow statement tracks actual cash movements over a period and shows whether you can pay your bills now
- An income statement, also called a profit and loss statement, shows turnover, costs and profit or loss over a period
- A balance sheet is a snapshot of what your business owns and owes, plus owner’s equity, on a single date
Here’s how they work together. Your profit and loss might show a healthy profit while your cash flow statement shows cash running low.
Your balance sheet then reveals growing trade debtors. Read side by side, the three statements tell you late payments are squeezing your cash despite strong sales.
Cash flow statement example
Here’s a simplified cash flow statement for a fictional Irish small business, a graphic design studio in Galway, for July and August 2026. The studio started the period with €12,000 in the bank.
During the two months, operating activities included these cash movements:
- €45,000 received from clients
- €8,000 paid to suppliers
- €18,000 paid in staff wages
- €3,200 paid to Revenue for the May–June VAT period
- €4,500 paid in office rent
The VAT payment is the 23% standard rate charged on sales, less VAT paid on purchases. Net cash from operating activities is €45,000 minus €33,700 in payments, which gives €11,300.
The studio also spent €3,500 on new computer equipment, so net cash from investing activities is minus €3,500. It repaid €2,000 of a business loan, so net cash from financing activities is minus €2,000.
The net increase in cash is €11,300 minus €3,500 minus €2,000, which comes to €5,800. Adding that to the €12,000 opening balance gives a closing cash balance of €17,800.
The studio’s core work generated more than enough cash to cover its VAT bill and running costs. It still had room to invest in equipment and pay down debt.
Do Irish businesses need a cash flow statement?
It depends on your company’s size. Small companies can choose to leave it out, while medium and large companies generally must include one in their annual financial statements.
Under the Companies Act 2014, your company is small if it meets two of these limits, in force from 1 July 2024:
- turnover of no more than €15 million
- a balance sheet total of no more than €7.5 million
- an average of no more than 50 employees
Small companies applying FRS 102 Section 1A aren’t required to prepare a cash flow statement, though they may choose to. Your accountant can confirm which category your company falls into.
Why cash flow statements matter for your business
Cash flow statements show whether you’ll have the cash to pay your staff and suppliers on time. Even a profitable business can struggle when cash arrives later than bills fall due.
Selling on credit is common in Ireland. The Atradius Payment Practices Barometer for Ireland 2026 found that an average of 44% of Irish business-to-business (B2B) sales are made on credit. Most companies offer 30-day payment terms.
That gap between sending an invoice and getting paid is where a cash flow statement proves its value. It shows whether slow payments are squeezing the cash you need for wages and tax bills.
When a business customer pays late, you’re entitled to statutory interest under the European Communities (Late Payment in Commercial Transactions) Regulations 2012. From 1 July 2026, the rate is 10.4% per annum, based on the European Central Bank (ECB) rate of 2.40% plus 8%.
VAT timing matters too. Most businesses file and pay VAT every two months. Payment is due by day 19 of the following month, or day 23 if you file through Revenue Online Service (ROS).
Reviewing your cash flow statement regularly helps you:
- plan for quieter trading periods by building cash reserves during busier months
- set aside enough cash for each VAT return
- spot overdue invoices early so you can chase them
- decide whether you can afford to hire staff or invest in equipment
- show lenders and investors a clear financial picture
Take control of your cash flow
A cash flow statement is most useful when it’s built on accurate, up-to-date numbers. Xero connects to your bank feeds and turns your transactions into financial reports, including your statement of cash flows. You can see where your money is at any time.
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FAQs on cash flow statements
Here are quick answers to common questions about cash flow statements.
How often should you review your cash flow statement?
Monthly suits most small businesses. A review before each VAT return also helps you check you’ve set enough aside for Revenue.
What’s the difference between cash flow and profit?
Profit is turnover minus costs, including non-cash items like depreciation, while cash flow is the money actually moving through your bank account. You can be profitable on paper and still run short of cash if customers pay slowly.
Can a business survive with negative cash flow?
Yes, in the short term, especially when planned investment causes the dip. Sustained negative operating cash flow usually signals falling sales or slow-paying customers.
What’s the easiest way to track cash flow?
Cloud accounting software like Xero connects to your bank account and updates your cash position automatically. You get a real-time view without tracking every transaction by hand.
What counts as cash equivalents?
Cash equivalents are investments you can turn into a known amount of cash quickly, such as a short-term bank deposit maturing within three months. Shares and longer fixed-term deposits sit outside this category.
What is a pro forma cash flow statement?
A pro forma cash flow statement projects future cash flows from expected sales and costs. It can also show the effect of a planned change, such as a new loan. It’s useful for forecasting and for supporting a loan application.
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.