The cash flow statement, section by section
By SuperdayReps · Wharton MBA · ex-Greenhill · investment banking interview coaching
6 min read · updated July 2, 2026
Here's the whole reason this statement exists: a company can report a profit and still bleed cash, and the cash flow statement is where that gap shows up.
The income statement is built on accruals, meaning you book a sale when you earn it, not when the money lands. So net income is an opinion about a period. Cash is a fact. This statement walks you from the opinion back to the fact.
If you can build it section by section and explain why each line moves cash, you understand the plumbing that a first-year analyst gets paid to model. Let's build it.
Where it starts: net income
The top line of the cash flow statement is net income, pulled straight from the bottom of the income statement. That's the indirect method, and it's the only one you'll see in interviews and in almost every real filing.
You start with the accrual profit number and then make a series of adjustments to strip the accruals back out and get to cash.
Three sections do that work: operating, investing, financing.
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There's about 4 more minutes of The cash flow statement, section by section below this, plus every other lesson in Accounting. Free account, no card.
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Frequently asked
- What does the cash flow statement do?
- The cash flow statement reconciles accrual net income back to real cash. The income statement books sales when earned, not when collected, so net income is an opinion about a period while cash is a fact. Starting from net income, it runs three sections and shows where the cash actually went.
- What are the three sections of the cash flow statement?
- Operating, investing, and financing. Operating starts at net income, adds back non-cash charges, and adjusts for working capital. Investing covers long-term assets, mainly capex and acquisitions. Financing tracks debt, dividends, and buybacks. Summing all three gives the net change in cash, which lands on the balance sheet as the new cash line.
- Why does an increase in accounts receivable reduce cash?
- Because you booked the revenue but never collected the money. Selling 100 on credit lifts net income and grows receivables 100, yet no cash arrived, so the increase in receivables is subtracted in operations. The rule: an operating asset going up uses cash; an operating liability going up is a source of cash.
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