What does a cash inflow signify in the context of cash flows?

Receipt of cash from non-cash items

The concept of cash flows involves the movement of cash in and out of a business due to various non-cash transactions. When cash is received from a non-cash source, it's referred to as a cash inflow, while cash payments related to such items are termed cash outflows. For instance, paying cash to purchase machinery constitutes a cash outflow, while receiving proceeds from the sale of machinery represents a cash inflow. Other examples of cash flows encompass activities like collecting cash from trade receivables, settling payments to trade payables, compensating employees, receiving dividends, and making interest payments. Within the realm of cash management, surplus cash is typically invested in cash equivalents. Consequently, the acquisition of marketable securities or short-term investments, which qualify as cash equivalents, is not factored into the preparation of the cash flow statement. This strategic approach ensures a focus on the core movement of cash, highlighting transactions directly related to the business's operational and financial activities.