Cash flow is the amount of money a financial institution has coming in and out on an annual basis, as determined by the difference between its total receipts and payments over that year. Cash flow is not taxed because it is the measurement of how much cash goes through a business. Here we will discuss why cash flow is not taxed.

1. Cash Flow is not Income

Cash flow is not income because it is a measurement of how much cash goes through a business. Income occurs when money passes through the government, in this case, when earned or unearned. Cash flow is calculated in one direction, either in or out of business at the end of the year. Income is calculated in a two-way calculation that encompasses profits and losses.

2. Cash Flow is not a Part of the Calculation of Taxable Income

Cash flow is not a part of the calculation of taxable income because it represents cash in and out and not net income. When calculating taxable income, gross receipts are taken into account, but cash flow is not. Gross receipts refer to all the money a business receives from selling goods and services; this includes money given off in discounts and cash acquired from credit cards/debt collection.

3. Cash Flow is not Sales

Cash flow is not sales because sales are the final number after all expenses have been subtracted from the initial revenue. Sales are of a product, but cash flow is the movement of money in and out of business. Sales are how much money a product brings in; cash flow gives us how much money goes in and out of business annually.

4. Cash Flow is not Money

Cash flow is not money because it is simply the measurement of how much money goes through a business. It includes both revenue and expenses but does not consider the cash balances on hand. Money, on the other hand, already has income and fees plus any cash balances on hand.

5. Cash Flow is not Controlled

A business does not control cash flow because it is not in a business’s control. Controls are part of the accounting department or a person’s efforts to manage the flow of money (and information) within a company. Control occurs through planning and procedures that ensure that cash flows match a variety of external factors, including income and expenses. Cash flow is not controlled.

6. Cash flow is not Regulated

Cash flow is not regulated because it does not tie in with any regulatory or government body. Regulatory bodies are agencies that oversee government, banking, and the like. Regulation occurs when a person or group of people can exercise a measure of authority over another person (or group). The tax code, for instance, involves taxes designed to regulate money flows by taxing income and profits by people who earn income and businesses who make profits. Cash flow is not controlled.

7. Cash Flow is not Used to Transmit or Receive Information

Cash flow is not used to transmit or receive information because it does not include transactions that take place in the exchange of money. The sending and receiving of money are performed through the use of cash, meaning money that physically exists. Cash flow pays no attention to the exchanging of information (and money) between people. It is simply a measurement that tells how much cash goes through a business.

8. Cash Flow is not Dependent on Profitability Levels

Cash flow is not dependent upon profitability or profitability levels because it does not depend on these factors in any way. Profitability is the amount of money a business has earned over a given year. Profitability levels are determined by several factors, including expenses and revenues, both of which are part of cash flow.

9. Cash Flow is not Related to Personal Income

Cash flow is not related to personal income because it has nothing to do with paychecks. Paychecks are based on an employee’s salary or wage that comes from business revenues and profits as well as from various benefits. Cash flow, in contrast, does not consider these factors. It consists of only expenses and collections for some time.

10. Cash Flow is an Indicator of Activity, not Profits

Cash flow is an indicator, but it is not a financial indicator. A financial indicator is a sign or signal used to measure the economic health of an economy. The amount of cash flow that occurs in a given period gives us an indication of how profitable a business is over that span.

Cash flow is not taxable because it is too broad and lacks specificity. Taxable income has been specifically outlined in the U.S. tax code. It includes business income and other forms of income. Cash flow measures value in terms of the amount a business generates from its operations. It does not take into account personal or business-specific goals because cash flow measures only cash going through a company to determine what money should be left on hand at the end of the fiscal year.