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Cash is a vital resource for the operation of any organization. It is possible to be making profits but run out of cash. If, for instance, there is a delay in the payment of accounts by debtors then the organization may find it does not have enough cash available to meet its obligations. This document will show you how organizations can use a cash flow forecast to model the probable future cash position of the organization.
Whilst a profit and loss account normally recognizes income and expenditure as they occur (i.e. when sales or purchases are invoiced), a cash flow forecast records the actual payment of the cash into or out of the organization (i.e. when the organization pays money into and out of the bank).
An example of a simple cash flow forecast for a small shop can be found in the using the button at the top of this page section. Note that the main headings of ‘income’, ‘expenditure, surplus/deficit’, ‘opening bank’, and ‘closing bank’ are applicable to all cash flow forecasts.
Preparing a Cash Flow
When faced with preparing a cash flow, it may help to bear the following points in mind:
