What does cash flow involve?

The concept of cash flow primarily involves documenting the actual movement of money into and out of a company. This means tracking all cash inflows, such as revenue from sales or investments, and cash outflows, including expenses such as rent, salaries, and operational costs. By accurately recording these transactions, businesses can assess their liquidity and overall financial health, ensuring they can meet obligations and make informed financial decisions.

Estimating future income, overseeing employee salaries, and tracking inventory costs are important aspects of financial management, but they do not directly reflect the process of cash flow. Estimating future income contributes to forecasting but does not represent current cash positions. Similarly, while overseeing salaries is necessary for payroll management, it is just one facet of cash outflows, and it does not encompass the broader picture of all cash movements. Tracking inventory costs relates to asset management rather than the cash flow dynamics. Understanding cash flow is crucial for businesses to maintain solvency and to plan for future expenses and investments.