Cash Flow Forecasts Flashcards
what is a cash flow forecast
cash flow forecast is an educated prediction of what the future cash flow may be like.
It allows the business to identify times when there may be shortages and plan for this by saving money from where there is a surplus.
why are cash flow forecasts so important
allows the business to forecast the money flowing into the business and the money flowing out of the business for a given period of time (usually a year).
they allow a business to pay its stakeholders on time and take corrective action when areas of concern are identified
What are the different inflows of a business
cash sales
credit sales
loans
capital introduced
sale of assets
bank interest received
Define cash sales
sales made in cash or by card that are received by the seller at the time of purchase or delivery
Define credit sales
credit sales are sales where payments are not made until several days or weeks after a product has been purchased.
The buyer is given a period of time after a sale is made to make the payment i.e. 30 days.
Define loans
bank loan is an inflow for the business as they may require the cash to purchase assets such as equipment, vehicle or machinery.
Define capital introduced
when a business owner invests their personal money, stock or assets into the business.
This is most common when a business starts or is expanding
Define sales of assets
method of increasing inflows to the business by selling assets owned by the business for cash to then use within the business
Define bank interest
interest paid by the bank on credit balances.
What are the different outflows of a business
Cash purchases
Credit purchases
Rent
Rates
Salaries
Wages
Utilities
Purchase of assets
Value Added Tax (VAT)
Bank interest paid
Define cash purchases
items that the business purchases and pays for them at the time of purchase.
Define credit purchases
Items that have been bought by a business but then paid for at a later date
Define rent
regular payment made to a landlord usually in exchange for the use of a premises.
Define rates
tax on property used for business purposes.
They’re charged on properties like offices, shops, pubs, and warehouses.
Define salaries
fixed regular payment to an employee.
Salaries are typically paid on a monthly basis but often expressed as an annual sum, made by an employer to an employee, especially in professional industries.
