Cash flow statement is concerened with the flow of cash in and out of the organisation. The statement captures both operating results and accompanying changes in the balance sheet. The analysis of the statement is done majorly to determine the short term viability of the organisation to pay the bills. International Accounting Standard 7 (IAS 7) is the standard that deals with cash flow statements.

Few of the stakeholders that are interested in the cash flow statement are:

1) Accounting Personnel

2) Potential lenders and creditors

3) Potential Investors

4) Shareholders

The cash flow statement has been devided into three components, i.e., cash flow from operations, cash flow from investments and cash flow from financing activities. 

Operating activies include those activities that are issential to run the organisation, i.e., purchasing raw material, building inventory, advertising etc. Investing activies on the other hand include purchase and sale of asstes, loans given etc. While financing activities include inflows and outflows related to the investors such as banks and shareholders. Outflows majorly include the interest and dividend given. 

There are two methods of preparing the cash flow statement, i.e., Direct Method and Indirect Method.

Under Direct Method, statement reports gross cash receipts and payments. There are certain reportings that are done as per the nature of the transaction which cannot be always defined. On the other hand, Indirect Method uses Net-Income as the starting point and then the adjustments are made from the same.  An increase in an asset account is subtracted from net income, and an increase in a liability account is added back to net income. This method converts accrual-basis net income (or loss) into cash flow by using a series of additions and deductions. Apart from this, while prepairing the cash flow statement there are certain rules which one needs to follow and should be clearly understood.

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