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What is Cash Flow?

Malcolm Tatum
Updated May 17, 2024
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Cash flow is usually understood to be the total amount of cash that is generated and received by a company, along with the amount of cash that is used for expenses of the organization. Generally, tracking cash flow means the immediate recording of transactions in a cash journal. This is considered essential to having an accurate picture of the financial stability of the business, and often can yield information that can be used to improve the economic condition of the company.

A cash flow can be associated with the general operation of the company or with a particular component or project of the corporation. For example, when one department maintains a discretionary fund of petty cash, a record of transactions will be maintained. The idea behind recording receipts to petty cash as well as expenditures that are paid out will help the business to recognize when an incidental expense becomes a recurring one, and should be added as a line item to the budget.

In the case of a special project, such as a marketing campaign, keeping track of the cash flow is a good idea. The simple record keeping will help the business to determine if the effort is generating revenue at projected levels along the way. At the same time, monitoring where the money is going will help to ensure that the project does not go over the amount that has been set aside for the purpose.

One of the central goals of any type of business is to maintain a positive cash flow. This is essentially a state where the cash receipts exceed the cash payments consistently over the course of a given period. The routine production of net profit is considered to be a basic indicator of financial health. Often, monitoring transactions can help to identify potential issues that threaten to turn a positive cash flow into a negative one before this actually takes place. When a negative trend is isolated, steps can be taken to adjust spending in order to more efficiently use the revenue that is coming into the organization and keep the enterprise profitable.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including WiseGeek, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
Discussion Comments
By andrew01 — On Mar 10, 2014

It was a good article.

By mutsy — On Oct 19, 2010

Oasis11-When someone is purchasing a business they will have a statement of cash flow that shows the bank how much money is actually generated from the business.

Also, an existing business owner that would like to obtain a business loan to open another location or expand their product offerings will be required to provide operating cash flow statements to the bank.

The cash flow calculation is among the most important figures of any business. There is cash flow software available that will help you with your cash flow calculation.

The Cash Flow Analyzer helps you determine if a property is profitable and what is the average return on your investment.It will also tell you if the rental income will produce positive cash flow.

By oasis11 — On Oct 19, 2010

Cupcake15-Sometimes cash flow financing occurs when someone buys a commercial property such as a business or apartment building.

Often the bank will look at the income that is generated from a business property or a residential property in its calculation when underwriting a loan. They will often take this income into consideration when qualifying someone for a loan.

By cupcake15 — On Oct 19, 2010

Anon39087-Cash flow problems arise when there are more expenses than revenue. Calculating cash flow is simple. You basically budget fixed expenses and assign a figure to the variable expenses and record the present revenue.

The difference in incoming payments and outgoing payments is referred to as cash flow. Negative cash flow indicates that a company does not have the revenue to meet its expenses, and positive cash flow means that there is a surplus of funds every month.

By anon39087 — On Jul 30, 2009

1.how do you prepare budget for a department.

2.how do you project budget for an institution

Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
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