What is cash flow?

• A. The flow of money in and out of a business
• B. The total assets of the business
• C. The market value of inventory
• D. The cash on hand at year end only

Answer: (A)

Cash flow is the flow of money in and out of a business over a period of time. It includes money received from customers and other sources, minus money paid for operating expenses, debt, taxes, and investments. Tracking this flow shows whether the business has enough liquidity to meet its obligations and continue operating, and it can be positive or negative depending on the timing of inflows and outflows. The other options describe static measures: total assets are what the business owns at a point in time, the market value of inventory is a valuation of inventory regardless of movement, and cash on hand at year end is just the ending cash balance, not the ongoing movement of cash through the period.