Cash Flow Statement — Complete User Guide — Two Accounts Web

Comprehensive guide for generating, analysing, and understanding the Cash Flow Statement report — tracking how cash moves through your business

Table of Contents

1. What Is the Cash Flow Statement?
   • Indirect Method vs Direct Method
   • The Three Activity Categories
2. Enabling from the Customize Menu
3. Field-by-Field Guide
   • Report Header Fields
   • Report Columns (Periods)
   • Report Footer
4. Settings Configuration
   • Cash Flow Statement Groups
   • How Accounts Map to CFS Categories
   • Cash Transaction Flag on Journal Entries
5. Creating a Cash Flow Statement Report
6. How the CFS Is Calculated
   • Indirect Method — Operating Activities
   • Direct Method — Operating Activities
   • Investing Activities
   • Financing Activities
   • Cash and Cash Equivalents Reconciliation
7. Drill-Down Capabilities
8. Sample Data and Report Output
   • Sample Setup
   • Indirect Method CFS Output
   • Direct Method CFS Output
   • Cash Reconciliation Verification
9. Common Issues and Solutions
10. Accounting Regulation Compliance

1. What Is the Cash Flow Statement?

The Cash Flow Statement (CFS) is a financial report that shows how changes in Balance Sheet accounts and income affect cash and cash equivalents. It breaks the analysis down into three activity categories: operating, investing, and financing.

Unlike the Profit and Loss Statement (which uses accrual accounting) and the Balance Sheet (which shows a point-in-time snapshot), the CFS bridges the gap by showing actual cash movements — where cash came from and where it went during a period.

1.1 Indirect Method vs Direct Method

The Cash Flow Statement supports two calculation methods, in accordance with IAS 7 §18-20:

1.2 The Three Activity Categories

Every transaction falls into exactly one of three categories (IAS 7 §10):

2. Enabling from the Customize Menu

The Cash Flow Statement report is a standard report — it is always available and does not need to be enabled via Customize Menu. Unlike entity tabs (Employees, Customers, etc.), the CFS appears automatically under:

• Reports → Financial Statements → Cash Flow Statement

However, the Cash Flow Statement Groups settings (used for organising accounts within each activity category) require the Bank and Cash Accounts tab to be enabled:

1. Open Customize Menu
2. Find Bank and Cash Accounts toggle
3. Ensure it is turned ON (default is ON)
4. Click Save

Once enabled, the CFS Groups settings appear at:

• Settings → Cash Flow Statement Groups — create and manage groups for operating, investing, and financing activities

3. Field-by-Field Guide

3.1 Report Header Fields

Location: Reports → Financial Statements → Cash Flow Statement → New Report

3.2 Report Columns (Periods)

Each report can contain one or more period columns for comparative analysis. You can compare multiple periods side by side — for example, Q1 vs Q2, or current year vs previous year. Each period has:

You can add multiple period columns. The report will show each period side by side for easy comparison.

3.3 Report Footer

The Footer field accepts multi-line text. It appears at the bottom of the generated report. Common uses include:

• Disclosure notes about methodology
• Currency references
• Rounding conventions
• Date of preparation

4. Settings Configuration

4.1 Cash Flow Statement Groups

Location: Settings → Cash Flow Statement Groups

Cash Flow Statement Groups allow you to organise accounts within each activity category into meaningful sub-sections. For example, under Operating Activities you might have groups like "Receipts from Customers", "Payments to Suppliers", and "Employee Costs".

Three group types are available, one per activity category:

Each group has a single field: Name (the display name).

How to use groups:

1. Create a group in Settings → Cash Flow Statement Groups (e.g. "Receipts from Customers")
2. Go to Settings → Chart of Accounts
3. Find the Balance Sheet or Profit and Loss account you want to assign
4. Set the appropriate group field (depends on the account type — see section 4.2)
5. Save the account
6. Generate the CFS — accounts will now appear under their assigned group headings

4.2 How Accounts Map to CFS Categories

Every account in the system belongs to one of the three CFS activity categories (or is classified as Cash and Cash Equivalents). The mapping depends on the account type:

Accounts You Can Configure

The following account types let you choose the CFS category and group:

Accounts With Fixed CFS Categories

These account types have predetermined CFS categories and cannot be changed by the user — they are set by the system based on their nature:

4.3 Cash Transaction Flag on Journal Entries

Location: Journal Entry form → Cash transaction for CFS purposes checkbox

Journal Entries are generally non-cash transactions (accruals, adjustments, reclassifications). However, some journal entries do represent actual cash movements — for example, a journal entry recording a loan disbursement or an inter-bank transfer.

Marking a journal entry as a "Cash transaction for CFS purposes" tells the system to include it in the Cash Flow Statement. Without this flag, journal entries are excluded from CFS calculations.

5. Creating a Cash Flow Statement Report

1. Go to Reports → Financial Statements → Cash Flow Statement
2. Click New Report
3. Enter a Description (optional, e.g. "Q1 2026 CFS")
4. Choose the Method — Indirect Method or Direct Method
5. Add one or more Periods:
   • Click Add to add a period column
   • Enter the From Date and To Date for each period
   • Optionally enter a Column Name (e.g. "Jan-Mar 2026")
   • Add additional periods for comparative analysis if desired
6. Optionally enter a Footer note
7. Optionally check Exclude Zero Balances and Round Decimals
8. Click Save
9. The report will generate and display with all three activity categories plus the cash reconciliation

6. How the CFS Is Calculated

This section explains the calculation logic behind each section of the Cash Flow Statement. Understanding the formulas helps you interpret the numbers and troubleshoot unexpected results.

6.1 Indirect Method — Operating Activities

The Indirect Method starts with Net Profit and adjusts for non-cash items and changes in working capital.

Step 1: Net Profit

Formula:

Net Profit = Sum of all Profit and Loss account amounts × −1
  (for the report period)

This gives the net profit or loss as reported on the Profit and Loss Statement for the period. The sign is reversed because Profit and Loss accounts have a natural credit balance — a credit balance (profit) becomes positive, a debit balance (loss) becomes negative.

Step 2: Adjustments for Non-Cash Items

Non-cash items are expenses or income that affect the Profit and Loss Statement but do not involve actual cash flows. These are added back (or subtracted) to convert from accrual profit to cash flow.

Formula:

Adjustments for non-cash items:
  For each Profit and Loss account:
    If the account is an Investing or Financing activity category:
      Include ALL transactions
    If the account is an Operating activity category:
      Include only transactions that are NOT cash transactions
      (i.e., non-cash items like depreciation, amortisation, unrealised gains)

Common non-cash adjustments:

Step 3: Changes in Working Capital

Working capital adjustments account for the timing difference between accrual recognition and cash movement.

Formula:

Change in Working Capital = Sum of Base Amount × −1
  for each Balance Sheet account (non-P&L) that:
    - Is classified as Operating Activities
    - Is NOT a Cash at Bank account
    - Includes both cash transactions AND accrual transactions
      (sales invoices, purchase invoices, credit/debit notes,
       payslips, receipts, payments, expense claims)

  Increase in a current asset (debit) ⟶ Cash outflow (negative)
  Decrease in a current asset (credit) ⟶ Cash inflow (positive)
  Increase in a current liability (credit) ⟶ Cash inflow (positive)
  Decrease in a current liability (debit) ⟶ Cash outflow (negative)

Examples:

Summary — Indirect Method Operating Activities

Cash from Operating Activities =
    Net Profit
    + Adjustments for non-cash items
    +/− Changes in working capital

6.2 Direct Method — Operating Activities

The Direct Method shows actual cash receipts and cash payments directly, rather than starting with Net Profit.

Formula:

For each account classified as Operating Activities:
  Amount = Sum of Base Amount × −1
  Only includes transactions that represent actual cash movements
  (receipts, payments, expense claims, inter-account transfers,
   export LC receipts, cash-flagged journal entries)

  Accrual transactions (sales invoices, purchase invoices,
  credit/debit notes, payslips) are converted to cash basis:
    - Sales invoices → matched to receipts
    - Purchase invoices → matched to payments

The Direct Method converts accrual-based invoices to cash basis by matching them to their corresponding receipts and payments. For example, a sale invoice created in January that was paid in February will appear as a cash receipt in February (not as revenue in January).

6.3 Investing Activities

Formula:

Cash from Investing Activities =
  Sum of Base Amount × −1
  for transactions affecting accounts classified as Investing Activities
  Only includes actual cash transactions

What appears here:

• Purchase of fixed assets (cash outflow)
• Sale proceeds from disposal of fixed assets (cash inflow)
• Purchase of intangible assets (cash outflow)
• Sale of intangible assets (cash inflow)
• Purchase of investments in other entities (cash outflow)
• Sale of investments in other entities (cash inflow)

Depreciation, amortisation, gains and losses on disposal are not investing cash flows — they are non-cash adjustments in the Indirect Method. Only the actual cash paid or received appears here.

6.4 Financing Activities

Formula:

Cash from Financing Activities =
  Sum of Base Amount × −1
  for transactions affecting accounts classified as Financing Activities
  Only includes actual cash transactions

What appears here:

• Capital contributions from owners (cash inflow)
• Capital withdrawals (cash outflow)
• Loan proceeds received (cash inflow)
• Loan repayments made (cash outflow)
• Letter of Credit payments (cash outflow)
• Inter-account transfers between bank accounts (shown as financing)
• Interdivisional loans (cash inflow for the receiving division)

6.5 Cash and Cash Equivalents Reconciliation

The bottom section of the CFS reconciles the opening and closing cash balances (IAS 7 §45-48).

Formula:

Opening Cash Balance =
  (A) Sum of Base Amount for all Cash at Bank accounts
      where: Date < Report Period Start Date
             OR it is an Opening Balance Entry
  (B) PLUS Sum of Base Amount for accounts not classified
      to any CFS category (not Operating, Investing, or Financing)
      where: Date < Report Period Start Date
  Total Opening Cash = (A) + (B)

Net Increase/(Decrease) in Cash =
    Cash from Operating Activities
    + Cash from Investing Activities
    + Cash from Financing Activities

Foreign Exchange Effect =
  Sum of Base Amount for foreign exchange revaluation entries
  on accounts not classified to any CFS category
  (revaluation entries dated exactly on the period end date
   that are synthetic adjustments, not linked to any transaction)

Adjustments =
  Journal entries on accounts not classified to any CFS category
  that are NOT flagged as cash transactions for CFS purposes

Closing Cash Balance = Opening Cash + Net Increase + FX Effect + Adjustments

The closing cash balance should match the total of all Cash at Bank accounts on the Balance Sheet as at the report To Date. If it does not match, there may be transactions that have not been properly classified, or journal entries that should be flagged or un-flagged as cash transactions.

7. Drill-Down Capabilities

Every amount shown on the Cash Flow Statement is clickable. Clicking an amount opens a detailed transaction viewer showing the individual General Ledger transactions that make up that amount.

This drill-down capability allows you to trace every number on the CFS back to its source transactions — essential for audit and analysis.

8. Sample Data and Report Output

8.1 Sample Setup

Transactions During January 2026

End of Period Balances (31-Jan-2026)

P&L for January 2026

Sales Revenue                 300,000 Cr
Salary Expense               (60,000) Dr
Depreciation Expense          (5,000) Dr
Rent Expense                 (15,000) Dr
                              ─────────
Net Profit                   220,000 Cr

8.2 Indirect Method CFS Output

Using the corrected sample data above, the Indirect Method produces:

Cash Flow Statement (Indirect Method)
For the period: 1-Jan-2026 to 31-Jan-2026
                                                    Amount (BDT)
━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━
CASH FLOWS FROM OPERATING ACTIVITIES

Net Profit                                                    220,000

Adjustments for non-cash items:
  Depreciation Expense                       5,000
                                                               ═════════
                                                                 5,000

Changes in working capital:
  Accounts Receivable                     (150,000)
  Inventory                               (120,000)
  Accounts Payable                          40,000
                                                              (230,000)
                                                               ═════════
Net cash used in operating activities                          (5,000)
                                                               ═════════

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of Fixed Assets                                    (50,000)
                                                               ═════════
Net cash used in investing activities                         (50,000)
                                                               ═════════

CASH FLOWS FROM FINANCING ACTIVITIES
  Loan Repayment                                              (10,000)
                                                               ═════════
Net cash used in financing activities                         (10,000)
                                                               ═════════

NET INCREASE/(DECREASE) IN CASH                               (65,000)

Cash at beginning of period                                   150,000
Cash at end of period                                          85,000
                                                               ═════════

Verification of Calculation

Net Profit:
  300,000 − 60,000 − 5,000 − 15,000 = 220,000 ✓

Non-Cash Adjustments:
  Depreciation = 5,000 (added back — not a cash expense) ✓

Working Capital Changes:
  AR: +150,000 increase × −1 = −150,000 (cash used for uncollected sales) ✓
  Inventory: +120,000 increase × −1 = −120,000 (cash used for inventory purchase) ✓
  AP: +40,000 increase × −1 = +40,000 (cash saved by delaying supplier payment) ✓

Operating: 220,000 + 5,000 − 150,000 − 120,000 + 40,000 = (5,000) ✓
Investing: (50,000) ✓
Financing: (10,000) ✓

Net Change: (5,000) + (50,000) + (10,000) = (65,000) ✓

Cash Reconciliation:
  Opening: 100,000 + 50,000 = 150,000 ✓
  Closing: 150,000 − 65,000 = 85,000 ✓
  Balance Sheet Check: 35,000 (Main) + 50,000 (Payroll) = 85,000 ✓
  CFS articulates with Balance Sheet ✓

DR = CR Verification:
  Total Debits: 790,000
  Total Credits: 790,000
  DR = CR ✓

8.3 Direct Method CFS Output

Using the same sample data, the Direct Method shows:

Cash Flow Statement (Direct Method)
For the period: 1-Jan-2026 to 31-Jan-2026
                                                    Amount (BDT)
━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━
CASH FLOWS FROM OPERATING ACTIVITIES

Cash Receipts:
  Cash received from customers                               150,000

Cash Payments:
  Cash paid to suppliers                     (80,000)
  Cash paid for salaries                     (60,000)
  Cash paid for rent                         (15,000)
                                                             (155,000)
                                                               ═════════
Net cash used in operating activities                          (5,000)
                                                               ═════════

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of Fixed Assets                                    (50,000)
                                                               ═════════
Net cash used in investing activities                         (50,000)
                                                               ═════════

CASH FLOWS FROM FINANCING ACTIVITIES
  Loan Repayment                                              (10,000)
                                                               ═════════
Net cash used in financing activities                         (10,000)
                                                               ═════════

NET INCREASE/(DECREASE) IN CASH                               (65,000)

Cash at beginning of period                                   150,000
Cash at end of period                                          85,000
                                                               ═════════

Verification

Direct Method Operating:
  Receipts: 150,000 (from customers)
  Payments: (80,000) to suppliers + (60,000) salaries + (15,000) rent
  = 150,000 − 155,000 = (5,000)

  Same result as Indirect Method: (5,000) ✓
  Both methods produce the same operating cash flow total ✓

Investing: (50,000) ✓
Financing: (10,000) ✓
Net Change: (65,000) ✓
Closing Cash: 150,000 − 65,000 = 85,000 ✓

8.4 Cash Reconciliation Verification

Opening Cash Balance:
  Cash at Bank — Main:      100,000
  Cash at Bank — Payroll:    50,000
                             150,000 ✓

Closing Cash Balance:
  Cash at Bank — Main:       35,000  (100,000 + 150,000 − 80,000 − 60,000 − 50,000 − 10,000 − 15,000)
  Cash at Bank — Payroll:    50,000
                              85,000 ✓

Balance Sheet Check:
  Total Cash at Bank on Balance Sheet at 31-Jan-2026: 85,000 ✓
  CFS closing cash: 85,000 ✓
  Articulation verified ✓

9. Common Issues and Solutions

9.1 CFS Closing Cash Does Not Match Balance Sheet

Cause: Journal entries involving cash accounts may not be properly flagged for CFS purposes. Or, a Cash at Bank account may have been assigned to an incorrect CFS category.

Solution: Check all journal entries that affect Cash at Bank accounts. Ensure they are flagged as "Cash transaction for CFS purposes" if they represent actual cash movements. Un-flag non-cash entries (accruals, reclassifications). Verify that all Cash at Bank accounts use the default "Cash and Cash Equivalents" CFS category.

9.2 Zero Amounts Appearing in the Report

Cause: The "Exclude Zero Balances" setting is unchecked.

Solution: Edit the report and check the "Exclude Zero Balances" option. This hides rows with zero amounts for a cleaner presentation.

9.3 Negative Net Cash from Operating Activities Despite a Profit

Cause: This is normal when a business is growing rapidly. A profitable business can have negative operating cash flow if it is investing heavily in working capital (increasing receivables and inventory faster than payables).

Solution: Review the working capital section. Large increases in Accounts Receivable or Inventory are common causes. While this is financially healthy in a growth phase, sustained negative operating cash flow requires attention.

9.4 Net Profit Shows as Zero

Cause: No Profit and Loss Statement accounts exist, or no P&L transactions occurred in the period.

Solution: Create P&L accounts in Settings → Chart of Accounts → Profit and Loss. Generate sales invoices, payments, and other transactions that create P&L entries.

9.5 Working Capital Rows Show Unexpected Amounts

Cause: A Balance Sheet account that should be classified as Operating Activities may have been assigned to a different category (Investing or Financing). Or, a P&L account has been incorrectly classified as Operating but should be Investing/Financing.

Solution: Check the CFS category assignment on each Balance Sheet and P&L account in Settings → Chart of Accounts. Verify each account's category against the IAS 7 classification rules in section 4.2 of this guide.

9.6 Accounts Appear in the Wrong Section

Cause: The CFS category on the account is set incorrectly.

Solution: Go to Settings → Chart of Accounts, find the account, and change its "Cash Flow Statement" field to the correct category. For accounts with fixed categories (like Fixed Assets = Investing, Capital Accounts = Financing), the category cannot be changed — this is deliberate per IAS 7.

9.7 The CFS Report Does Not Appear

Cause: The CFS is a standard report under Reports → Financial Statements. It should always be visible. If it is not visible, the report listing may be filtered.

Solution: Go to Reports → Financial Statements directly. The Cash Flow Statement link should appear. If not, check that your user permissions allow access to financial reports.

10. Accounting Regulation Compliance

10.1 IAS 7 — Statement of Cash Flows

10.2 IAS 1 — Presentation of Financial Statements

Requirement (§10): A complete set of financial statements includes a statement of cash flows.

Compliance: The Cash Flow Statement report generates a complete statement of cash flows that can be presented alongside the Balance Sheet and Profit and Loss Statement for a full set of financial statements.

Requirement (§54): Specific line items must be presented on the face of the financial statements.

Compliance: The CFS presents separate line items for each material class of cash flow within operating, investing, and financing activities. Accounts can be grouped using Cash Flow Statement Groups for a more organised presentation.

10.3 IFRS for SMEs — Section 7: Statement of Cash Flows

10.4 NBR VAT Act 2012

Relevance: The Cash Flow Statement is not directly used for VAT compliance — VAT is calculated on individual transactions (sales invoices, purchase invoices) rather than on cash flows. However, the CFS provides useful context for understanding the timing of VAT payments and receipts.

VAT payments to the tax authority appear as operating cash outflows. VAT refunds received appear as operating cash inflows. The CFS can help identify whether VAT payable on the Balance Sheet is being settled in a timely manner.

10.5 Bangladesh Labour Act 2006

Relevance: While the Labour Act does not directly mandate cash flow reporting, the CFS provides useful information for:

• Demonstrating the ability to pay wages (positive operating cash flow)
• Tracking provident fund contributions (operating cash outflows)
• Assessing overall liquidity and cash position

10.6 DR = CR Verification

The Cash Flow Statement itself is a report, not a journal entry — so it does not need DR = CR enforcement. However, the underlying General Ledger transactions that feed the CFS must always satisfy double-entry bookkeeping:

Sample Data Verification:
  Total Debits: 790,000
  Total Credits: 790,000
  DR = CR ✓

  Cash Flow Statement:
    Operating Cash Flow:   (5,000)
    Investing Cash Flow:  (50,000)
    Financing Cash Flow:  (10,000)
    Net Change:           (65,000)
    Opening Cash:         150,000
    Closing Cash:          85,000

  Balance Sheet Cash:      85,000  ✓ (articulates)

End of Cash Flow Statement Guide