Cash flow

Meaning

Cash flow (التدفق النقدي) is the movement of cash: what came in from customers, what went out to suppliers, staff, the bank and the owners. It differs from profit because revenue is recognised when earned, not when paid, and because buying equipment or stock spends cash without touching the income statement until later. A profitable business can run out of cash; a loss-making one can be cash-rich for a while.

The statement of cash flows groups the movements into operating (the trade itself), investing (assets bought and sold) and financing (loans and capital) and reconciles the opening and closing bank balance. It is the third statement in a set of accounts, and for a small business the one that predicts whether next month's payroll clears.

Also called: cash flow statement · statement of cash flows · التدفق النقدي

Example

Al Noor's October profit is 11,000.00, but its cash fell by 21,920.00: customers paid 7,665.00 of the 42,000.00 invoiced, a supplier was paid 11,385.00, and payroll took 18,200.00. The statement of cash flows shows the gap as a rise in receivables.