Cash inflows refer to all such activities that result in the business getting cash coming into the business. Cash flow statement’s main objective is to determine the impact of cash on various types of cash inflows and outflows.
Types of Cash Inflows
Cash inflows can be classified into three major categories, which are:
1.Cash inflow from operating activities: Let us look at some of the cash inflow examples that arise from the operating activities.
a. Cash received from the debtors for providing goods and services
b. Interests and dividends on loan with investments and loans
2. Cash inflow from investing activities: The following are some of the examples of cash inflows that are obtained from investing activities.
a. Cash obtained from sale of equipment, plant and property along with other long term assets.
b. Cash obtained from selling of securities and bonds, shares and debentures.
3. Cash inflow from financing activities: Cash flow from financing activities can include the following examples
a. Cash obtained after issuing shares.
B. Cash received from the short term and long term debts repayment.
Importance of Cash Inflow to a business
Following are some of the reasons why cash inflow is essential for the functioning of a business:
1. Cash is essential for maintaining the day to day operations of the business. Without cash a business would not be able to pay for its operating expenses, staff salaries and the bills.
2. A business contract won’t be complete if businesses do not receive regular cash inflow. It will result in delay and rejection of the contract.
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