What are the 3 types of cash flows?

Cash flows refer to the inflows and outflows of money from the business during a particular accounting period. A cash flow statement is prepared to provide a detailed analysis of the movement of the business’ cash during the period, which may be quarterly, monthly, or annually. 

It is an important financial statement to determine the cash position of the business. The assessment of the cash position is crucial at the time of budgeting and to show investors.

Generally, in business, there are three types of cash flows that result from the flow of cash in and out of the business.

Cash flows types

There are three types of cash flows

1. Cash flows from operating activity
2. Cash flows from investing activity
3. Cash flows from financing activity.

Let’s discuss each cash flow type in detail.

Cash flow from operating activity

It measures the cash flow generated or consumed in the day-to-day operation of the business, i.e., via sales, bills, wages, etc. The operating activities of the business include generating revenue from selling goods or providing services to the customer, producing goods or paying expenses, or funding working capital. It shows the net cash available for the business from the operating activities for business growth and new endeavors.

• Cash Flow from investing activity

This part of the cash flow statement shows how much money the company has spent or earned through investing activities during the specific accounting period. Investing activities include the purchase of assets – equipment, machinery, etc (fixed and long-term assets), mergers and acquisitions, and investment in stocks and bonds.

Cash Flow from financing activity

It is the final part of the cash flow statement. It represents the net amount of funds that a business generates over a specific period. The cash flow from the financing activities includes how a company’s cash circulates among the owners, investors, and creditors of the company. It includes long-term debts, equity, and dividends of the company.
The cash flow statement determines the working capital – the amount required to run daily business operations. It helps to understand whether a business is able to generate cash to continue its operation and pay bills or not.

Cash Flow management services

Every business requires effective management of cash flows. The prediction of cash requirements at different times and the implementation of required measures determine whether a business will succeed or fail.
Outsourcing cash flow management services to an expert like Meru Accounting gives you access to specialized capabilities that provide a competitive edge.
We have a dedicated and experienced team of CPAs, Cas, and accountants who provide customized solutions to our clients. Our comprehensive cash flow management services include:

• Prediction of cash flow
• Cash Flow planning and budgeting
• Management of financial risks.
• Maintenance of daily cash flow.
• Managing the electronic fund transfer system.
• Fraud management.
• Reviewing contracts with the financial institution and banks
• Bank reconciliation.
• Accounts payable and receivables.

If you're looking for an outsourcing partner that helps you succeed in a highly competitive environment, then you've come to the right place at Meru Accounting.
Contact us now to outsource cash flow management services to us.