Cash Flow
Cash flow is the movement of money into and out of a business, project, or financial product. It is usually measured during a specified, finite period of time. Cash flow is typically measured as cash coming in minus cash going out. Positive cash flow indicates that a business’s liquid assets are increasing, enabling it to settle debts, reinvest in its business, return money to shareholders, pay expenses, and provide a buffer against future financial challenges. Negative cash flow indicates that a business’s liquid assets are decreasing.
History of Cash Flow
The concept of cash flow has been around since the early days of accounting. In the late 19th century, the concept of cash flow was formalized by the American Institute of Certified Public Accountants (AICPA). The AICPA developed the Statement of Cash Flows, which is now a required part of financial statements. The Statement of Cash Flows is used to measure a company’s cash flow over a period of time.
In the early 20th century, the concept of cash flow was further developed by economists. Economists used cash flow to measure the economic health of a business or industry. Cash flow was used to measure the ability of a business to generate profits and to pay its debts. Cash flow was also used to measure the ability of a business to reinvest in its operations and to pay dividends to its shareholders.
Cash Flow Comparison
| Cash Flow | Income | Expenses |
|---|---|---|
| Positive | More than expenses | Less than income |
| Negative | Less than expenses | More than income |
Summary
Cash flow is the movement of money into and out of a business, project, or financial product. It is usually measured during a specified, finite period of time. Positive cash flow indicates that a business’s liquid assets are increasing, while negative cash flow indicates that a business’s liquid assets are decreasing. Cash flow is an important measure of a business’s economic health and is used to measure the ability of a business to generate profits and to pay its debts. For more information about cash flow, visit websites such as Investopedia, The Balance, and the U.S. Small Business Administration.
See Also
- Net Income
- Working Capital
- Cash Flow Statement
- Cash Flow Forecasting
- Cash Flow Analysis
- Cash Flow Budgeting
- Cash Flow Management
- Cash Flow Ratios
- Cash Flow Return on Investment
- Cash Flow Yield
