Glossary of Cash Flow Terms

January 13, 2021 Admin

Cash Flow Term Definitions

You probably didn't start your business in order to be a bookkeeper or accountant, but accurate financial records will still be key to your success. 

Knowing whether or not you have sufficient funds to pay down your debt commitments, invest in the growth of your company (build/lease new locations, R&D, employee training, etc.) or have greater flexibility to respond to critical decisions, cash flow is critical in understanding your company’s liquidity and its ability to generate and use cash. Following is a list of terms that are important to know and understand.

Accounts Payable

Accounts payable (A/P) is money a business owner owes to vendors, service providers, tax agencies and so on. Liability that results from the purchase of goods or services (money owed to others).

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

The accrual basis of accounting measures the performance and position of a company by recognizing economic events regardless of when cash transactions occur. The general idea is that economic events are recognized by matching revenues to expenses (the matching principle) at the time in which the transaction occurs rather than when payment is made (or received). This method allows the current cash inflows/outflows to be combined with future expected cash inflows/outflows to give a more accurate picture of a company's current financial condition.

Fixed Assets

A fixed asset is a long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be consumed or converted into cash any sooner than at least one year's time.

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 as to what the company owns and owes, as well as the amount invested by the shareholders.

Burn Rate

A burn rate describes the rate at which a new company uses up its venture capital to finance overhead before generating positive cash flow from operations. In other words, it's a measure of negative cash flow.


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: financial assets or the financial 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/out of the business, 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 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 smart, timely decisions over the long term.

Cash on Hand

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

Current Assets

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 normal course of business. Current assets include cash, accounts receivable, inventory, marketable securities, prepaid expenses and other liquid assets that can be readily 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

Amount borrowed or the amount still owed on a loan, separate from interest.


Income tax deduction that allows a taxpayer to recover the cost or other basis of certain property; annual allowance for the wear and tear, deterioration, or obsolescence of the property.


Equity is a 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 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 have to 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 cost.

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

A financial statement that measures a company's financial performance over a specific accounting period. Financial performance is assessed by giving a summary of 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 fiscal quarter or year. An Income Statement is also known as a profit and loss statement or statement of revenue and expense.


Interest is a fee paid for the use of another party's money. To the borrower it is the cost of renting money, to the lender the income from lending it.


An invoice is a commercial 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 usually specify the terms of the deal and provide information on the available methods of payment. An invoice is also known as a bill, statement, or sales invoice.


Liquidity is the degree to which an asset or security can be bought or sold in the market without affecting the asset's price. Liquidity is characterized by a high level of trading activity. 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. Also known as marketability. Liquidity is often calculated by using liquidity ratios.

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.


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.

Schedule a Conversation

If you have questions about your cash flow, or how it might be improved, one of our Relationship Managers is happy to help. 


The views, information, or opinions expressed in this article are solely those of the author and do not necessarily represent the views of Citizens State Bank and its affiliates, and Citizens State Bank is not responsible for and does not verify the accuracy of any information contained in this article or items hyperlinked within. This is for informational purposes and is no way intended to provide legal advice.

Share This: