Cash Flow Statement – Tracking Inflows & Outflows

Often confused with the Income Statement, the Cash Flow Statement focuses strictly on the movement of cash. It answers: "Do I have enough cash to pay bills today?"

Income Statement vs Cash Flow Statement

• Note: For individuals, Income Statement and Cash Flow are often merged because we live on a cash basis. But distinctively, Cash Flow captures Asset purchases and Loan Principals too.

Structure of Personal Cash Flow

1. Cash Inflows (+)

• Salary credited.
• Sale of assets (Selling a car).
• Loan taken (Cash comes in).
• Interest received.

2. Cash Outflows (-)

• Fixed/Variable Expenses (Rent, Food).
• Debt Service: Paying Loan EMI (Principal + Interest).
• Asset Purchase: Buying Shares, Buying a Fridge.
• Tax Payments.

3. Net Cash Flow

Net Cash Flow = Total Inflows - Total Outflows

Importance of Tracking

You can have a Surplus in Income Statement (Earn 50k - Spend 30k = 20k Surplus) but still have Negative Cash Flow.

How?

• Earn 50k. Spend 30k.
• But you invested 25k in locking-period deposits or paid a huge annual premium.
• Cash Status: 50 - 30 - 25 = -5k.
• Result: You have to dip into savings or borrow.

Lesson: Profit (Surplus) is opinion; Cash is fact.

Cash Flow Format

Analyzing the Statement

1. Operating Flow: Is your Salary covering Living Expenses? (If no, big problem).
2. Discretionary Flow: How much cash goes into investments vs luxury?
3. Liquidity Cushion: Are you cash positive every month?

Summary

• Money moves: Cash Flow tracks movement, not just accrual.
• Includes Capital items: Income statement excludes loan principal/investments; Cash Flow includes them as outflows.
• Positive Cash Flow: Essential for survival and avoiding debt traps.

Quiz Time! 🎯

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