Cash flow

Question 1

What is a cash flow statement

Answer 1

A document recording the inflows and outflows of cash (capital) and balances (opening and closing)

Question 2

What is a cash flow forecast

Answer 2

A prediction of what cash will flow in and out of a business in a given time period

Question 3

Explain the balances on the cash flow statement

Answer 3

The balance is the amount of cash readily available. Add the net cash flow (positive or negative) to get the closing balance for the period, which becomes the opening balance of the next.

Question 4

What are the benefits of a cash flow forecast

Answer 4

• Clear idea of performance
• Shows need for capital
• Helps plan ahead for use of capital

Question 5

What are the limitations of a cash flow forecast

Answer 5

• Time consuming
• Depends on skill of person
• Doesn’t guide actions on variances
• Needs constant monitoring for accuracy
• Contains estimations