What’s the Difference Between Cash Inflow and Cash Outflow

Managing the books can be a bit tricky at first, but it is necessary for any business. If you want to avoid financial troubles, it's best to have at least a basic understanding of bookkeeping. And a great place to start is to learn about business cash flows.

What Are Business Cash Flows?

Business cash flows refer to the movement of cash into or out of a business. The cash that comes into a business is a cash inflow. The cash that leaves a business is a cash outflow.

Cash Inflow

Cash inflow occurs when a business receives cash from a customer to pay for products or services. It could also be an advance on accounts receivable or a loan received from a lender.

Cash Outflow

Cash outflow is when a business spends money on a business asset or to pay bills. It could also be a loan repayment or an advance on accounts payable, which is the total amount of money that a business will owe to its suppliers.

How Are Business Cash Flows Used?

Cash flows are key to business growth. They help a business understand how much cash is available at the start of the month, how much is spent on the business, and how much is left over for the business owner to keep in the business.

The more cash flow a business has left over, the more liquid (available) the business is. The more liquid the business is, the better it can pay its suppliers and employees and finance growth.

How Are Cash Flows Used in a Simple Cash Flow Statement?

A business cash flow statement is a simple accounting report that shows cash inflows and outflows. The statement begins with the amount of money in the bank at the beginning of the month and ends with the amount of money in the bank at the end of the month.

If the sum of the inflows is greater than the sum of the outflows, then the business has more cash at the end of the month. In other words, they are in the black in terms of cash flow.

If the sum of the outflows is greater than the sum of the inflows, then they are in the red in terms of cash flow.

What Factors Affect Business Cash Flows?

Cash flow is influenced by many factors.

The main influence is expenses. Business expenses come in two forms, actual expenses, and accrual expenses.

Actual expenses are those that are spent on a particular business asset or project. These are payments for products, supplies, repairs, and so on.

Accrual expenses are those that have not been paid. These come in the form of accounts payable and accounts receivable.

Cash flow is also influenced by business income. Business income can come in the form of revenue or income.

Revenue is the money a business makes by selling its products or services to a customer.

Income is the money a business receives when they invest in the business.

Final Thoughts

Knowing the difference between cash inflow and cash outflow is a valuable skill for business owners. When you understand the various cash flows, you can accurately predict your cash flow situation. You can then assess the growing needs of your business and make the right business decisions.

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