Unit 3: Aim E Break-even and cash flow forecasts Flashcards
What is a Cashflow Forecast?
It’s a document that shows the predicted flow of cash in and out of the business over a given period of time normally 12 months
What does a cashflow forecast show you?
- A healthy cash flow means that a business
will have enough cash at any one point in time to be able to meet demand for short-term cash outflows - A business can identify where there might be
shortages and either try to prevent this from happening or put plans in place to deal
with it
What are the 6 inflow?
- Cash Sales
- Credit Sales
- Loans
- Capital Introduced
- Sales of Asserts
- Bank Interest Received
What is Cash Sales?
the customer pays for the product or service immediately when they make the purchase
What is Credit Sales?
the customer buys something but doesn’t pay for it right away. Instead, they agree to pay later, within a certain time period, like 30 days
What are Loans?
amounts of money that businesses borrow from a bank or other financial institution to buy important things
What is Capital Introduced?
refers to money that the business owners or shareholders put into the business to either start it up or to help it grow.
What are sales of Asserts?
Sometimes businesses sell things they no longer need, such as old equipment or furniture, in order to get cash quickly. These items are called “assets,” and selling them can give the business a short-term boost in cash flow.
What is Bank Interest Received?
The interest that the bank pays to a business on any money the business has saved in its account. When a business has money sitting in the bank, the bank gives them a little extra money (interest) as a way to encourage saving.
What are the 10 outflow payments?
1.Cash Purchases
2.Credit Purchases
3.Purchase of assets
4. Value Added To Tax
5. Bank interest paid
6. rent
7. rates
8. salaries
9. wages
10. utilities
What is Cash Purchases?
When a business buys something, it pays for it right at the time of the purchase,
What is Credit Purchases?
When a business buys something but doesn’t pay for it right away. Instead, the business agrees to pay for the items later
What are purchases of asserts?
This refers to when a business buys things that it plans to use for a long time, usually more than a year. These are called non-current assets because the business doesn’t plan to sell them soon but rather keep them to help run the business
What is Value Added to Tax?
VAT is a tax that businesses must pay when they buy or sell products. If a business is VAT registered, it must pay VAT to the government (HM Revenue & Customs - HMRC) on the items it buys and sells
How do you evaluate cashflow- forecast?
- Opening balance – amount
of cash available in a business
at the start of a set time
period, for example a month. - Closing balance – amount of
cash available in a business at
the end of a set time period,
for example a month.