Which statement about cash flow is true?

• A. Cash flow measures the amount of cash available at a given time to pay business expenses.
• B. Cash flow is the total profit generated in the period.
• C. Cash flow is the net value of assets at year end.
• D. Cash flow is the amount of cash invested by owners.

Answer: (A)

Cash flow is about the actual movement of cash in and out of the business, which shows how much cash is available to cover expenses and obligations as time passes. This focus on timing and liquidity explains why the statement about cash flow being the amount of cash available to pay business expenses is the true one: it reflects whether you have enough cash on hand to meet near-term needs, not just whether you earned profit on paper.

It’s different from profit, which is revenues minus expenses but can include non-cash items and timing differences. A company can show solid profit but still struggle to pay bills if cash hasn’t come in from customers yet or if cash is tied up in other activities. Similarly, cash flow isn’t the net value of assets at year end—that’s a balance-sheet notion called asset value or net assets—nor is it simply the amount of cash invested by owners, which is just financing activity or contributed capital.