Cash flow refers to the movement of money as it comes in and goes out of a business each month. Merchandise sales, accounts receivable payments and loans are examples of incoming cash flow. Outgoing cash flow includes money spent on rent, utility payments and office supplies. A business that takes in more money than it spends is in a position of positive cash flow; there is enough money to meet business operating expenses.
A cash flow statement is a summary of the cash received and spent by a business. It is an overview of income and expenses, and it can be generated monthly or annually as required. The statement provides valuable financial planning information about business gains and overspending. It highlights the business processes that generate cash and points out the areas where spending cutbacks are necessary.