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Money received and paid during a period; its timing and categories differ from measures of accounting profit.
Save conceptCash flow describes money received and paid during a period. A net inflow means receipts exceed payments; a net outflow means payments exceed receipts. The measure is useful for understanding a business’s ability to meet payments when they are due, alongside information about its available cash and financing arrangements.
Cash can move because of operating activity, investment or financing. A customer may pay after a sale is recorded, and a purchase may be paid at a different time from when an expense appears in the accounts. A cash-flow account therefore tracks movements of funds rather than simply reproducing an accounting profit figure. The timing of receipts and payments matters to day-to-day funding.
Suppose a business receives US$1,000 and pays US$900 during a hypothetical period. Its net cash inflow for those stated movements is US$100, calculated by subtracting payments from receipts. This does not by itself establish its profit because the example does not describe which receipts are sales or which payments are expenses. The values are hypothetical, not current company data.
Profit measures recognised income and expenses under an accounting framework. A cash balance describes funds at a particular time, while cash flow describes movements across a period. A business can report a profit yet face a payment-timing problem, or receive cash from borrowing without making a profit from that receipt. Each measure answers a different financial question.
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