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Cash flows, on the other hand, include fixed expenses, variable expenses and discretionary expenses.
FIXED expenses
Are expenditures of a fixed nature. These expenses are generally necessities and the amounts incurred are normally the same every month. Examples include housing loan and hire purchase installments, rental payments, insurance premiums and childcare expenses.
VARIABLE expenses
Are expenditures that vary from month to month. Like fixed expenses would also be considered necessities. Some examples include food, clothing, utilities, mobile phone bills and essential household items.
DISCRETIONARY expenses
Are optional expenses. Most discretionary expenses are items which are considered non-necessities or nice-to-haves. Several examples include dining out, branded clothing, air-conditioning, cable TV, entertainment and non-essential household items.
Now that you have an understanding a cash inflows and outflows, let us study its application through a cash flow statement.
Will be back with cash flow statement.
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