How is "cash flow" defined in financial terms?

In financial terms, "cash flow" is defined as the total amount of money transferred into and out of an individual's or a business's accounts over a specific period. This encompasses all sources of cash income, including earnings from sales, investment income, and any other cash receipts, as well as all outgoing payments such as expenses, debts, and other expenditures. Understanding cash flow is crucial for managing finances effectively, as it provides insight into liquidity, helping individuals and businesses ensure they have enough cash to meet their obligations and make informed financial decisions.

The importance of cash flow extends to various aspects of financial planning, including budgeting and forecasting future financial positions. A positive cash flow indicates that an entity has enough liquidity to support its operations, while negative cash flow may signal potential financial trouble.