Circular Flow of Income Sample

Cash flow or cash flow, payment flow, cash flow, cash flow – a set of time-distributed receipts (inflows) and payments (outflows) of funds generated by the economic activity of an enterprise, regardless of the sources of their formation. The concept of cash flow includes various types of flows associated with economic activity. Flows can be classified in various ways.

In accordance with international accounting standards, the following cash flows are distinguished:

  • from operating (current) activities;
  • from investment activity;
  • from financial activities.

This classification is the most important, since it is the basis of financial analysis, forecasting, financial reporting, etc. Other bases for classification are the following properties of cash flows.

By direction of movement

According to the direction of cash flow, there are:

  • positive cash flow, reflecting the receipt of cash;
  • negative cash flow reflecting the payment of cash.

By the method of calculating the volume

According to the method of calculating the volume, cash flows are divided into:

  • gross, which characterizes the totality of receipts or expenditures of funds in the period under review;
  • net, which shows the difference between positive and negative cash flows (between the receipt and expenditure of funds) in the period under review.

By time

According to the method of evaluation over time, the following types of cash flows are distinguished:

  • real – characterizes the cash flows of the enterprise as a single comparable value, reduced in value to the current point in time;
  • future – characterizes the cash flows of the enterprise as a single comparable value, reduced in value to a specific upcoming point in time.

Distinguishing between present and future flow is important because the time factor matters in determining the value of the flow (see Time Value of Money).

By stability of time intervals

According to the stability of time intervals, cash flows are distinguished:

  • with uniform time intervals within the period under review;
  • with uneven time intervals within the considered period.

The flow of payments, all members of which are either positive or negative (payments), and the time intervals between payments are the same, is called a regular cash flow, or financial rent, or annuity.

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Circular Flow of Income Sample. (2017, Sep 01). Retrieved from https://graduateway.com/circular-flow-of-income-essay-sample-essay/