Cash Flows

Cash flow is the movement of cash into or out of a business. It is not the same as profit. Profit is an accounting concept that includes non-cash items like depreciation and credit sales. Cash flow, on the other hand, is concerned only with actual cash receipts and actual cash payments.

The term 'Cash Flows' specifically refers to the movement of cash that results from a non-cash item. A non-cash item is any transaction that does not itself represent cash, such as a machine, a building, inventory, or a receivable. When cash is received because of such an item, it is called a cash inflow. When cash is paid because of such an item, it is called a cash outflow.

For example, if a company buys a machine and pays cash for it, that payment is a cash outflow. If the company later sells that machine and receives cash, that receipt is a cash inflow. Other common examples of cash flows include:

• Collecting cash from trade receivables (debtors) — inflow.
• Making a cash payment to trade payables (creditors) — outflow.
• Paying salaries to employees — outflow.
• Receiving dividend income — inflow.
• Making interest payments on a loan — outflow. …