Page 222 - AAA Integrated Workbook STUDENT S18-J19

Chapter 143 4

1.3 Types of forecasts

Forecasts may be in the form of a profit forecast or a cash flow forecast.

Profit forecast

Shows expected revenues and costs prepared on an accruals basis in the same way
as a statement of profit or loss.

Forecast revenues will include amounts for sales expected to be made during the
forecast period regardless of whether the customer is expected to pay for the goods
during the forecast period.

Depreciation will be included based on the expected level of assets held during the
forecast period calculated using the company’s usual depreciation rate.

Cash flow forecast

Shows expected cash payments and receipts reflecting the amount and timing of the
expected cash flows.

Forecast receipts will take into consideration payment terms given to customers and
expected bad debts (a bad debt will not result in a cash inflow).

Depreciation is not a cash expense therefore will not appear in the forecast. Instead
a payment to acquire an asset will be included as a cash outflow and proceeds from
the disposal of an asset will be included as a cash inflow.

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