What is Cash Flow?

Cash flow is usually understood to be the total amount of cash that is generated and received by a company, along with the amount of cash that is used for expenses of the organization. Generally, tracking cash flow means the immediate recording of transactions in a cash journal. This is considered essential to having an accurate picture of the financial stability of the business, and often can yield information that can be used to improve the economic condition of the company.

A cash flow can be associated with the general operation of the company or with a particular component or project of the corporation. For example, when one department maintains a discretionary fund of petty cash, a record of transactions will be maintained. The idea behind recording receipts to petty cash as well as expenditures that are paid out will help the business to recognize when an incidental expense becomes a recurring one, and should be added as a line item to the budget.

In the case of a special project, such as a marketing campaign, keeping track of the cash flow is a good idea. The simple record keeping will help the business to determine if the effort is generating revenue at projected levels along the way. At the same time, monitoring where the money is going will help to ensure that the project does not go over the amount that has been set aside for the purpose.

One of the central goals of any type of business is to maintain a positive cash flow. This is essentially a state where the cash receipts exceed the cash payments consistently over the course of a given period. The routine production of net profit is considered to be a basic indicator of financial health. Often, monitoring transactions can help to identify potential issues that threaten to turn a positive cash flow into a negative one before this actually takes place. When a negative trend is isolated, steps can be taken to adjust spending in order to more efficiently use the revenue that is coming into the organization and keep the enterprise profitable.