Cash flow is the change in a business's cash and cash equivalents. A cash inflow is an increase in those assets, while a cash outflow is a decrease in the same. A business's cash flows are not the same as its revenues and expenses under accrual basis accounting and are described in detail in the cash flow statement for the period. Cash flows on this statement are separated into three sections: operating activities, investing activities and financing activities. Cash flows from investing and financing activities make up nonoperating cash flow.
List all cash flows from investing activities. Add them together to produce net cash flow from investing activities. Such cash flows are caused by changes to the business's long-term assets, where long-term is defined as the asset being meant to last for periods of longer than one year. Properties, equipment and other such items are all considered long-term assets. Examples of cash flows from investing activities include cash spent to purchase vehicles intended for the business's use and cash received for selling used equipment.
List all cash flows from financing activities. Add them together to produce net cash flow from financing activities. Cash flows from financing activities are related to the business's equity and long-term liabilities. Equity refers to the business's interactions with its owners and shareholders, while long-term liabilities are those lasting more than one year. Examples of such cash flows include dividends being paid out to shareholders and interest payments on debts with terms of longer than one year.
Add together net cash flows from investing and financing activities in order to produce the business's nonoperating cash flow. As its name indicates, the business's total net cash flow minus its net cash flow from operating activities is likewise equal to its nonoperating cash flow.
- AccountingCoach: Cash Flow Statement
- AccountingCoach: What Are Some Examples of Investing Activities?
- AccountingCoach: What Are Some Examples of Financing Activities?
- U.S. Securities and Exchange Commission. "Beginners' Guide to Financial Statement." Accessed Mar. 19, 2020.
- Office of the Washington State Auditor. "Statement of Cash Flows." Accessed Mar. 19, 2020.
- U.S. Securities and Exchange Commission. "AT&T Form 10-K 2012." Accessed Mar. 18, 2020.
Alan Li started writing in 2008 and has seen his work published in newsletters written for the Cecil Street Community Centre in Toronto. He is a graduate of the finance program at the University of Toronto with a Bachelor of Commerce and has additional accreditation from the Canadian Securities Institute.