Cash flow forecasts
Calculating cash flow forecasts
To calculate cash flows for each time period, the following are needed:
- Opening balance
- Net cash flow
- Closing balance
The opening balance in a cash flow forecast refers to the value of cash held by a business at the start of a trading period (usually the beginning of the month).
Net cash flow is the numerical difference between an organization’s total cash inflows and its total cash outflows, per time period.
The closing balance in a cash flow forecast refers to the value of cash held by a business at the end of a trading period (usually the final day of the month), which therefore becomes the opening balance for the next time period.
Closing balance = Opening balance + Net cash flow
Cash flow forecasting formulae
Net cash flow = Total cash inflow – Total cash outflow
Closing balance = Opening balance + Net cash flow
Opening balance = Closing balance in previous month
Top tip!
Remember that a cash flow forecast (CFF) is different from a cash flow statement (CFS). A CFF is a prediction of the cash flows in and out of a business over the foreseeable future. The CFS shows the actual cash inflows and outflows for a specified time period.
Exam practice question 3
Ortega Football Academy’s cash flow forecast shows a closing balance of $80,000 at the end of this month. Carlos, the finance director, then discovers that debtors of $12,000 have yet to be included and there is an outstanding invoice of $18,000 that needs to be paid. Calculate the closing balance for Ortega Football Academy. [2 marks]
Exam practice question 4
Refer to the figures below for excerpts from Tonina & Co.’s cash flow statement.
Opening balance: $135,500
Cash inflow: $532,500
Cash outflow: $352,500
a. Define the term cash flow statement. [2 marks]
b. Calculate Tonina & Co.’s net cash flow. [2 marks]
c. Calculate Tonina & Co.’s closing balance. [2 marks]
Exam practice question 5
Complete the 3-month cash flow forecast for Mustang & Ford Winery. [4 marks]
Dec ($) | Jan ($) | Feb ($) | |
Sales revenue | 8,500 | 7,500 | |
Bank loan | 0 | 4,000 | |
Cash inflow | 10,500 | 7,500 | |
Cost of goods sold | 5100 | 3900 | 4500 |
Salaries | 2000 | 2000 | 2000 |
Rent | 1800 | 1800 | 1800 |
Other costs | 300 | 400 | |
Cash outflow | 9,280 | 8,000 | |
Net cash flow | -780 | -1,200 | |
Opening balance | 0 | -780 | 1,720 |
Closing balance | 1,720 | 520 |
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