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Module 3: Cash Flow

Glossary of Terms

Following are some commonly used terms related to cash flow. Feel free to bookmark this and link to it so you can easily refer back to it if needed.


Accounts Payable Accounts payable (A/P) is money a business owner owes to vendors, service providers, tax agencies and so on.
Accounts Receivable Accounts receivable (A/R) is money that is due from customers as a result of delivering goods or services and extending credit in the ordinary course of business.
Accrual Basis of Accounting Accrual basis accounting recognizes business revenue and matching expenses when they are generated – not when money actually changes hands. This means companies record revenue when it is earned, not when the company collects the money. It also means recognizing expenses when the company incurs their liability, not when it pays them.
Balance Sheet A balance sheet is a financial statement that summarizes a company’s assets, liabilities and shareholders’ equity at a specific point in time. These three balance sheet segments give investors an idea of what the company owns and owes and the amount invested by the shareholders.
Burn Rate A burn rate describes the rate at which a new company uses up its capital to finance overhead before generating positive cash flow from operations. In other words, it’s a measure of negative cash flow.
Capital Capital can mean many things. Its specific definition depends on the context in which it is used. In general, it refers to financial resources available for use, such as the monetary value of assets, such as cash. It is also used to describe the factories, machinery and equipment owned by a business and used in production.
Cash Conversion Cycle A cash conversion cycle depicts how business dollars are invested in materials, resources and other inputs. Raw materials can be converted into products that are sold to generate payments or cash. If a business has a short conversion cycle, the owner can quickly turn it back into cash which puts money back into the business in a relatively short period of time. If a business has a long cash conversion cycle, the owner will not be able to use that money while inventory is unsold.
Cash Flow Statement

A cash flow statement tells a business how much money is available to run the business, how much cash is moving in and out at any point in time, where that cash is coming from and going to, and when the cash is moving or needs to move.


A cash flow statement helps a business owner to think ahead. It helps pinpoint when a business is generating more cash than needed to meet obligations. Conversely, it alerts a business owner when the business is running short. Cash flow statements are invaluable tools that permit business owners to make informed, timely decisions over the long term.


Cash on Hand

Funds that are immediately available to a business, and can be spent as needed.


Current Events

A balance sheet account that represents the value of all assets that are reasonably expected to be converted into cash within one year in the ordinary course of business. Current assets include cash, accounts receivable, inventory, marketable securities, prepaid expenses and other liquid assets that can be easily converted to cash.


Current Liabilities A company’s debts or obligations that are due within one year. Current liabilities appear on the company’s balance sheet and include short term debt, accounts payable, accrued liabilities and other debts.
Debt Principal The amount borrowed or the amount still owed on a loan, separate from interest.
Depreciation Income tax deduction that allows a taxpayer to recover the cost of specific property through an annual allowance for its wear and tear, deterioration, or obsolescence over time.
Equity Equity is cash, stock or any other security representing an ownership interest. On a company’s balance sheet, equity is the amount of the funds contributed by the owners (the stockholders) plus the retained earnings or losses.
Fixed Assets

A fixed asset is a long-term tangible piece of property that a business owns and uses to produce its income, such as machinery or equipment, that is not expected to be sold in the near future and converted into cash.


Fixed Cost A fixed cost does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses that must be paid by a company, independent of any business activity. It is one of the two components of the total cost of a good or service, along with variable costs.
Gross Profit Gross Profit is a company’s revenue minus its cost of goods sold. It is a company’s residual profit after selling a product or service and deducting the cost associated with its production and sale.
Income Statement
(Profit & Loss Statement)
A financial statement that measures a company’s financial performance over a specific accounting period. Financial performance is assessed by summarizing how the business incurs its revenues and expenses through both operating and non-operating activities. It shows the net profit or loss incurred over a specific period, typically over a quarter or year. An Income Statement is also known as a profit and loss statement or statement of revenue and expense.
Interest Interest is a fee paid for the use of another party’s money. For a business, it is the money paid back to a lender for the privilege of using their money to finance expansion or operations.
Invoice An invoice is a document that itemizes a transaction between a buyer and a seller. It will usually include the quantity of purchase, price of goods and/or services, date, parties involved, unique invoice number and tax information. If goods or services were purchased on credit, the invoice will specify the terms of the deal and provide information on the available payment methods. An invoice is also known as a bill, statement, or sales invoice.
Liquidity Liquidity is the degree to which an asset or security can be bought or sold in the market without affecting the asset’s price. A high level of trading activity characterizes liquidity. Assets that can be easily bought or sold are known as liquid assets. The term is also used to define the ability to convert an asset to cash quickly.
Net Profit Net profit is your bottom line. This shows how much your company is making on sales after expenses, interest and taxes.
Variable Cost

A variable cost is a corporate expense that varies with production output.

Variable costs fluctuate depending on a company’s production volume. They rise as production increases and fall as production decreases. Variable costs differ from fixed costs such as rent, advertising, insurance and office supplies, which tend to remain the same regardless of production output. Fixed costs plus variable costs equal total cost.

Vendor A vendor is a party in the supply chain that makes goods and services available to companies or consumers. The term is typically used to describe an entity that is paid for the goods that are provided, rather than the manufacturer of the goods. A vendor, however, can operate both as the supplier of goods (seller) and the manufacturer.


Cash flow template/example

If you are doing your cash flow analysis on paper, you can get a binder of templates at an office supply store or on Amazon.

If you have Microsoft Office, you can get a spreadsheet template for free.

Software programs and online subscription services have built-in templates you can use for practice and reporting.