Cash inflows and outflows: examples from a real small business month

Short answer: a cash inflow is any money that arrives in the business bank account: customer payments, card takings, a loan being paid in, money the owner puts in, a tax refund, the sale of an old vehicle. A cash outflow is any money that leaves it: supplier bills, wages, rent, tax payments, loan repayments, equipment, and what the owner takes out. Inflows minus outflows for a period is your net cash flow, and it explains why the bank balance moved. Several of the biggest inflows and outflows (loans, VAT or GST, equipment, drawings) never appear on the profit and loss, which is why profit and the bank balance so often disagree. (New to the term? What is cash flow? covers the meaning, positive and negative cash flow, and the three kinds.)

Examples of cash inflows

Grouped the way a cash flow statement groups them:

Type	Cash inflow examples
Trading (operating)	Customer payments against invoices, card and cash takings, deposits from customers, VAT or GST collected on sales, tax refunds, grants, insurance payouts, interest received
Assets (investing)	Selling a vehicle, machine or other equipment, selling a share in another business
Financing	A bank loan or overdraft being drawn, money the owner puts in, a director’s loan to the company, new shares issued

Examples of cash outflows

Type	Cash outflow examples
Trading (operating)	Supplier bills and stock, wages, PAYE and National Insurance or PAYG and super, rent, fuel, insurance, software and phones, VAT or GST paid to the tax office, income or corporation tax, interest on loans, refunds to customers
Assets (investing)	Buying a vehicle, machinery, computers, a fit-out or another business
Financing	Repaying the capital on a loan, lease or hire purchase, owner’s drawings, dividends, repaying a director’s loan

A transfer between two of your own accounts (from the current account to a savings or tax account) is neither: the money has not left the business. Count it in both accounts, or in neither, but not as an outflow.

A worked example: one month for a plumbing business

A UK plumbing and heating company with four staff, VAT-registered, starts March with £31,400 in the bank. Here is everything that went in and out during the month:

Cash in	£	Cash out	£
Customer invoices paid (incl. VAT)	46,800	Supplier bills (parts, boilers)	19,200
Card payments on small jobs (incl. VAT)	3,600	Net wages	11,400
Old van sold	6,500	PAYE and National Insurance to HMRC	3,900
Bank loan paid in	10,000	Rent	1,800
		Fuel, insurance, phones, software	2,700
		VAT return paid	7,300
		New van	24,000
		Loan repayment	850
		Dividend to the director	4,000
Total in	66,900	Total out	75,150

Net cash flow is 66,900 − 75,150 = −£8,250, so the bank closes the month at £23,150. The owner’s first reaction is that March was a bad month. Sorting the same lines into the three groups tells a different story:

• Trading: in 50,400 (the customer and card payments), out 46,300 (suppliers, wages, PAYE, rent, running costs and the VAT return). Net +£4,100.
• Assets: in 6,500 (old van), out 24,000 (new van). Net −£17,500.
• Financing: in 10,000 (loan), out 4,850 (loan repayment and dividend). Net +£5,150.

4,100 − 17,500 + 5,150 = −8,250. The trading made cash. The drop is the van, and the loan covered only part of it. That is a deliberate decision, not a warning sign, as long as the remaining £23,150 covers the next few weeks of commitments.

Two more things this table shows that the profit and loss would not:

1. Not all of the £50,400 is the business’s money. It includes VAT at 20%: 50,400 ÷ 1.2 = 42,000 of sales, so £8,400 is VAT collected that goes to HMRC with the next return. This month the £7,300 VAT payment for last quarter happened to go out at the same time. In a month with no VAT payment, trading cash flow looks up to £8,400 better than the business really did, because that VAT is still owed.
2. Six of the lines never reach the P&L. The loan paid in and the repayment (apart from interest), both vans (the P&L sees depreciation and any gain or loss on sale instead), the VAT return and the dividend. Together they come to £52,650 of the £142,050 that went through the account, before counting the £8,400 of VAT inside the customer payments. The profit but no cash guide covers the usual reasons the two numbers part company.

Which inflows and outflows do not appear on the profit and loss

Cash movement	Where it goes instead
Loan drawn or capital repaid	Balance sheet, as a liability (only the interest is an expense)
Equipment or vehicle bought	Balance sheet, as an asset; the P&L gets depreciation over several years
Equipment sold	Balance sheet; the P&L shows only the gain or loss against its book value
VAT or GST collected and paid	Balance sheet, as a liability to the tax office
Owner’s drawings or dividends	Equity (for a company, out of retained earnings)
Money the owner puts in	Equity, or a director’s loan account
Customer deposits before the work is done	A liability until the job is invoiced
Cash put in the till as a float	Balance sheet, as a current asset that stays the same each day (cash float)

It works the other way too: an invoice sent but not yet paid counts as sales on an accrual P&L with no cash inflow yet, and a bill received but not paid counts as a cost with no outflow. The cash vs accrual guide explains the two bases.

Where to see cash in and out in Xero

• Bank Summary report: for each bank account, the opening balance, cash received, cash spent and closing balance for the period. Run it by month for the last 12 months to see the pattern in a few seconds.
• Cash Summary report: cash in and out grouped by account (sales, each expense, VAT or GST, loans), so you can see which lines drove the month. It is the closest Xero gets to the table above; the Xero Cash Summary report explained reads one month line by line.
• Statement of Cash Flows: the same movements sorted into operating, investing and financing, the way the three groups above are. The Xero statement of cash flows guide explains each line, and the cash flow statement example walks through a full one. Cash flow from investing and financing activities shows how to read the assets and financing groups together, and what each positive or negative pattern usually means.
• The dashboard (homepage): a chart of cash in and out for the last six months. Handy at a glance, but too short to compare with last year; see Xero dashboard explained. To chart 12 months yourself, see cash flow chart.

All of these read the bank transactions in Xero, so they are only right once the accounts are reconciled. Owner drawings and loan movements also need coding to the right account (not to an expense) or they distort both the cash reports and the P&L.

How to use inflows and outflows to manage the month

• Look at trading cash flow on its own. If it is negative for two or three months running, the business is spending more than it collects from customers, whatever the loan or a one-off sale does to the balance. The cash flow from operations guide shows how to work it out.
• Set the tax aside as it comes in. Moving the VAT or GST share of each customer payment into a separate account stops quarter-end payments from being a surprise.
• Forecast the big outflows. Tax payments, insurance, annual software and equipment are lumpy. A cash flow forecast puts them in the months they land, and a cash flow budget plans them for the year ahead.
• Speed up the inflows. Late customer payments are the most common reason inflows fall short; the who owes me money guide shows how to find and chase them.

To total a month of your own figures, the free net cash flow calculator does the sum and tells you what the result means.

Common questions

What is the difference between a cash inflow and income? Income is what you earned in the period, counted when you invoice on an accrual basis. A cash inflow is money actually arriving in the bank. A loan, a VAT refund or the sale of a van are inflows but not income, and an unpaid invoice is income but not yet an inflow.

Is a loan a cash inflow? Yes. The money arriving is a financing inflow, and each capital repayment is a financing outflow. Only the interest goes on the profit and loss.

Are owner’s drawings a cash outflow? Yes. Drawings or dividends are money leaving the business, but they are not an expense, so they reduce cash without reducing profit.

Is VAT or GST a cash inflow? The VAT or GST you collect from customers arrives in the bank with their payment, so it is an inflow, but it belongs to the tax office. It goes back out as an outflow when you pay the return.

Is depreciation a cash outflow? No. The cash outflow happens when you buy the asset. Depreciation spreads that cost across the P&L over its useful life without any money moving.

What is net cash flow? Total inflows minus total outflows for a period. Positive means the bank balance went up; negative means it went down. In the example above it was −£8,250.

Know where the money went, every Monday

ReportPilot reads your Xero figures and sends a short plain-English email every Monday: cash in the bank and how it has moved since last month end, how sales and net profit compare with last month, who owes you and how much is overdue, and bills due soon. Its dashboard keeps 24 months of sales, profit, cash and money owed to you by month. It asks Xero for read-only access, so it can read your accounts but never change them, and there is a 14-day free trial with no card.