Cash flow diagrams show the amount of money going in and out of a project, with even parts representing time periods. Arrows indicate inflow or outflow, and the diagram shows recovered money and payment schedules. It is used alongside other charts to track overall balance and profit.
Accountants, project managers, and engineers looking to show the amount of money going into or out of a project typically use a cash flow chart. A cash flow diagram is a picture or graph that is divided into even parts, with each section representing a period of time such as weeks, months, or years. Arrows pointing towards or away from the diagram represent money entering or leaving the project. This diagram helps planners know how much money is being spent on a project and what the potential profits will be from the project based on cash flow information.
The cash flow diagram itself is simple. It starts out as a horizontal line, with smaller vertical lines representing sections of time. Time must be uniform, so the diagram cannot plot the months and thus randomly start the years. If the cash flow diagram is intended to track years, it will only show information based on years and no other time measurements.
The arrows are then placed on the line. There are two types of arrows: one that represents inflow or money from the project, and one that represents outflow or money from the project. When an arrow points away from the cash flow diagram, it means inflow, while an arrow pointing towards the line means outflow.
Inflow is all the money that goes into the project. If there are loans, this is considered the inflow. Sales, if the project is making money, are considered inflow. Outflow is when money is spent or invested. Even if the money will make more money in the future, it’s still considered an outflow.
Aside from costs, the cash flow diagram also typically shows all the money that can be recovered at the end of the project. If the project requires tools, such as heavy machinery, the diagram will typically have an area that shows the resale value of the equipment and shows that as inflow. If there are payment schedules, such as credit payments or loans, these will immediately be recorded in the cash flow diagram. This lets managers know where that money is going and that they can’t count on that money for the project.
Cash flow charts are typically paired with other types of charts and sheets that track overall balance and sales or profit. These are used to help managers understand how much money is left and how much money is being spent. They also let managers know if the project is making money or nothing is being done.
Protect your devices with Threat Protection by NordVPN
