Which statement describes the flow of money into and out of a business?

Which statement describes the flow of money into and out of a business?

• A. The amount of cash kept in reserve at year end
• B. The flow of money in and out of a business
• C. Total revenue in a period
• D. Net profit after tax

Answer: (B)

Cash flow represents the movement of money into and out of a business. It tracks how cash comes in from operations, investments, and financing, and how cash is paid out, giving a clear picture of liquidity and the business’s ability to meet obligations. This makes it the best description of money flow. Revenue, while important, measures income earned during a period regardless of when cash is received, so it doesn’t show actual cash movements. Net profit after tax reflects profitability after costs and taxes, not the timing or amount of cash flows. A year-end cash reserve describes a single point in time—the cash balance—not the ongoing flow of funds.

Cash flow represents the movement of money into and out of a business. It tracks how cash comes in from operations, investments, and financing, and how cash is paid out, giving a clear picture of liquidity and the business’s ability to meet obligations. This makes it the best description of money flow. Revenue, while important, measures income earned during a period regardless of when cash is received, so it doesn’t show actual cash movements. Net profit after tax reflects profitability after costs and taxes, not the timing or amount of cash flows. A year-end cash reserve describes a single point in time—the cash balance—not the ongoing flow of funds.