A Cash Flow Statement provides information about the change in the position of Cash and Cash Equivalents of an enterprise over an accounting period. The primary objective is to provide useful information about cash flows (inflows and outflows) from various activities during a specific period.

The procedure begins by classifying the activities contributing to the change in cash position into three main categories: operating, investing and financing activities. The methodology involves working out the net cash flow (or use) from all three of these activities for the accounting period.

While preparing the statement, full details of inflows and outflows are provided under these specific heads. The aggregate of the net cash flows from all activities is calculated and shown as Net Increase/Decrease in cash and Cash Equivalents.

To arrive at the final closing balance, the amount of cash and cash equivalent at the beginning is added to the net increase or decrease. This results in the amount of cash and cash equivalents at the end of the accounting period.

Unless specified otherwise, the Cash Flow Statement may preferably be prepared by the Indirect Method, as this is the method used by most companies in practice.