Cash flow and cash flow statements and forecasts- pages 38-39 Flashcards
Cash flow
Refers to the money coming into the enterprise each day- its inflows- and leaving the enterprise- its outflows
What does cash flow depend on?
Depending on whether the enterprise has a greater inflows or outflow of cash over a period of time, it will have either a positive or negative liquidity
What is the difference between outflows and inflows?
The amount of cash in the enterprise- this is its net cash flow
Why is it important to that an enterprise knows how much cash is flowing in and out?
This is so the enterprise can ensure that it has sufficient money to cover purchases and other running costs such as wages and rent
Example of cash inflows
- Revenue from sales of goods and services
- Owner’s capital
- Bank loans
- Sales of assets
Example of cash outflows
- Raw materials for manufacture of goods
- Wages
- Heating, lighting and power
- Fuel for vans
- Rent
- Marketing
- Monthly loan repayments
- Insurance and business rates
What does it mean if an enterprise has a positive liquidity?
If cash inflows over time are greater than cash outflows. It will have cash to pay for purchases
What does it mean if an enterprise has a negative liquidity?
If its cash inflows over time are less than its cash outflows. It will not have sufficient cash to pay for purchases
What do enterprise’s do with cash flow data?
They use this information to monitor and control cash flow
Cash flow statement
This records the enterprise’s actual cash inflows and outflows over the previous 12 months. Looking at last year’s cash flow statement may be used to produce the enterprise’s cash flow forecast
Cash flow forecast
This predicts the enterprise’s likely cash inflows (sales) and outflows (purchases) each month over a period of time
What does the cash flow forecast allow?
It allows the enterprise to calculate net cash flow and ensure it has sufficient cash to cover its running costs
