The money going into and out of your business is referred to as cash flow. Your cash flows are divided into three categories on the cash flow statement: operations, investments, and finance. You’ll find the following information in each section:
Cash inflows are the funds that enter into your business from sources such as sales, loans, and investments. Outflows of cash, such as money spent on supplies, loans, and staff, are examples of cash outflows. You can use the cash flow formula to figure out how much cash you’ll have in the future (or how much cash you had in the past):
Initial cash balance + cash inflows – cash outflows = cash balanceThe cash balance is the amount of money in the business right now. The beginning cash balance is the amount of money available at the start of the cash flow statement period you choose.
When you want to make sure you have enough money to pay for a future expense, such as next month’s salary or opening a new location next year, you can use a cash flow statement and the equation.
A cash flow statement, for example, can be used to compare how much cash you will have at the beginning of next month versus how much cash you have at the beginning of current month.
Let’s say you have $1,000 to begin with. You spend $ 1,500 on costs for the month, sell $300 in cash and another $ 1,200, but the buyer does not pay you for two months.