The cash flow statement is one of the three main financial statements that a company or organisation must prepare as part of its year end accounts. The other two statements are the profit and loss account and the balance sheet.
The profit and loss account shows the profitability of the business and the balance sheet shows solvency and liquidity so the cash flow statement shows the sources of the cash and how the business uses its cash.
The cash flow statement discloses and explains changes in cash and cash equivalents of a company during the financial year. Cash is the liquid resources that the business has and generally cash equivalents are assets easy to convert to cash. Cash equivalents are short-term, highly liquid investments subject to insignificant risk of changes in value.
