statement of cash flow
Statement of Cash Flow shows the actual money that moved in and out of a business, separate from the profit it claims to have made on paper.
In plain English
Adaeze runs a fabric shop in Balogun market and the year had gone well on paper. Her accountant showed her a profit of ₦3,200,000 for the year, and she nearly ordered a small party. But when she checked her bank balance, there was barely ₦400,000 sitting there, and two of her biggest customers still owed her money from October.
That gap between the profit on paper and the cash in her account is exactly what a Statement of Cash Flow explains. Profit counts a sale the moment it happens, even if the customer has not paid yet. Cash flow only counts money once it actually lands in the account. Adaeze was rich in sales and poor in cash, and the statement would have told her that months earlier.
The statement is broken into three parts. Operating activities show cash from the actual business, selling fabric, paying suppliers, paying staff. Investing activities show cash spent on things like a new delivery van or a second shop. Financing activities show cash from loans taken or repaid, or money the owner put in or took out.
A salary earner in Lagos can think of it the same way. Your payslip might show ₦450,000 gross for the month, that is your income statement figure. But your cash flow is what is left after rent, transport, data, and that loan instalment to your cousin actually leave your account. The payslip flatters you. The account balance tells the truth.
For someone in the UK sending money home every month, the family back in Nigeria is essentially watching their own cash flow statement. Money comes in from the relative abroad, money goes out on school fees and light bills, and what matters is not how much was promised but how much actually arrived and when.
Investors and banks lean heavily on this statement because profit can be dressed up, but cash is harder to fake. A business can look profitable and still collapse if it runs out of actual cash to pay salaries and suppliers. That is the calm danger this statement is built to catch.
A company reports ₦10,000,000 profit for the year, but its cash flow statement shows only ₦2,000,000 actually came in, because ₦8,000,000 sits unpaid with customers. The statement flags that the business is profitable on paper but tight on real cash.
Questions people ask
Why can a business be profitable but still run out of cash?
Because profit includes sales made on credit that have not been paid for yet. If customers delay payment, the business can show a healthy profit while its bank account runs dangerously low.
What is the difference between this and an Income Statement?
The Income Statement shows profit or loss based on sales and expenses recorded when they happen, whether or not cash has moved. The Statement of Cash Flow only tracks actual cash entering or leaving the business.
Do small businesses in Nigeria need to prepare this statement?
Formally it is required for companies filing full financial statements, but even a market trader or small business owner benefits from tracking it informally, since it reveals cash problems long before they become a crisis.
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