The cashflow statement shows all the cash inflows and cash outflows over a period of time. Anything that is a cashflow makes its way into this statement. The accrual principle that applies to the income statement does not apply here. Transactions will appear in the cashflow statement in the period when the cash is received or paid. It does not matter when the underlying transaction happened. For example, a sale made to a customer on credit will appear in the income statement in the period the sale was made, regardless of whether the cash has been received or not. However, the cashflow statement will only show the cash from the sale when the customer pays the company. To better understand the sources and uses of cash over the period. The cashflow statement is broken down into three sections. Operating, investing, and financing activities. Cashflow from operating activities shows the cash generated or used by the day-to-day activities of the business. For example, sales to customers, purchases from suppliers, salaries paid and taxes paid. Cashflow from investing activities includes purchases and sales of assets needed to run the business. For example, machinery and buildings, as well as financial investments such as the purchase or sale of shares in other companies. And cashflow from financing activities shows cash received from or paid back to lenders like banks and shareholders. For example, if the company raises money by issuing more shares.

The sum of these three sections is the net cashflow for the period, and this will explain the change in the cash balance on the balance sheet from one period to the next. Say you started the period with a cash balance of 100 on your balance sheet and ended the period with a cash balance of 300, so there's been an increase of 200, this increase of 200, we'll agree with the net cashflow for the year in the cashflow statement with the 200 being broken down between operating, investing and financing activities.