Study Notes

Finance: Introduction to Cash Flow (GCSE)

Level:
GCSE
Board:
AQA, Edexcel, OCR, IB

Last updated 22 Mar 2021

Cash flow describes the movements of cash into and out of a business

When you look at the bank statement of any business, you soon realise that cash flow is a dynamic and often unpredictable part of business life.

In business, cash is always on the move…

  • Cash flows into the bank account when customers pay for their sales, when a loan is received from the bank, interest is received or when assets are sold
  • Cash flows out of the bank account when suppliers are paid, employee wages and salaries are paid; interest is paid to the bank and so on

You need to be able to distinguish between:

  • Cash inflows: movements of cash into a business
  • Cash outflows: movements of cash out of the business

The difference between the cash inflows and cash outflows during a specific period (e.g. a week, month) is known as the "net cash flow".

The challenge for any business (particularly a start-up) is to ensure that it manages its net cash flow to ensure that it does not run out of money.

Main types of cash inflow and outflow

The main types of cash flow can be summarised as follows:

© 2002-2022 Tutor2u Limited. Company Reg no: 04489574. VAT reg no 816865400.