Income
Cash Flow: Definition & Example
What Is Cash Flow?
Cash flow is the movement of money into and out of an account, household, business, or property over a period. Positive cash flow means more money came in than went out.
What does cash flow mean?
For a household, cash flow is income coming in minus spending and bills going out. For a business, it is split into operating, investing, and financing cash flow on the cash flow statement. For a rental property, cash flow is rent collected minus operating expenses and debt payments.
Cash flow is different from profit. A business can be profitable on paper but short on cash if customers pay slowly, and a household can have a good salary but negative cash flow if spending exceeds take-home pay.
Bank transaction data shows cash flow directly. That is why lenders increasingly use cash-flow data, with the consumer’s permission, alongside credit reports.
Cash flow example
A rental duplex collects $3,200 in monthly rent. Taxes, insurance, repairs, and management total $1,050, and the mortgage payment is $1,650. Monthly cash flow is $3,200 − $1,050 − $1,650 = $500.
Related terms
- Cash-Flow UnderwritingCash-flow underwriting is evaluating an applicant using income, spending, and balance patterns from their bank account data, often alongside or instead of a traditional credit report.
- Average Daily BalanceAverage daily balance is the average amount of money in an account across every day of a period, calculated by adding each day’s ending balance and dividing by the number of days.
- Bank Statement AnalysisBank statement analysis is reviewing a person’s or business’s bank transactions to estimate income, spot recurring expenses, check balances, and flag risks such as overdrafts or unusual deposits.
- Disposable IncomeDisposable income is the money a person has available to spend or save after income taxes are paid. It is sometimes confused with discretionary income, which is what remains after necessities too.
- Owner StatementAn owner statement is a periodic report a property manager sends a property owner summarizing income collected, expenses paid, management fees, and the net amount distributed.
