Categorizing Cash Flows

Cash inflows and outflows over the course of the year could come from many sources. Some examples are the following:

• Net income for the year

• Sale of equipment

• Owner contribution

• Purchase of assets

• Dividend payments

• Loan proceeds

• Loan repayments

• Sale of marketable securities

The list goes on and on. It's useful to group these cash flows into types to give the list some structure.

There are three main types of cash flows:

Cash flow from operating activities: These include cash inflows from revenues and cash outflows from expenses. These are the flows of money that occur because of the day-to-day operations of your business.

Cash flow from investing activities: These include cash outflows from investing in new assets and cash inflows from selling off old assets. Assets can include land and buildings, equipment, furniture, or marketable securities.

Cash flow from financing activities: These include cash inflows from borrowing funds or from new injections of capital from the shareholders and cash outflows from the repayment of loans as well as the payment of capital or dividends to the shareholders of the corporation.