Page 262 - Cambridge IGCSE Business Studies

Cambridge IGCSE Business Studies Section 5 Financial information and decisions

Jan Feb Mar
Cash inflow
Receipts 10 15 18
Total inflow 10 15 18
Cash outflows
Payments 7 27 12

Total outflow 7 27 12
Net cash flow 3 (−12) 6
Opening balance 5 8 (−4)
Closing balance 8 (−4) 2

Figure 20.2 Sample cash-flow forecast

The closing balance in the cash-flow forecast shows how much cash the business
expects to have at the end of each month. If the closing balance is forecast to be
negative then this tells management that the business will have a cash shortage.

ACTIVITY 20.1

Look at the cash-flow forecast in Figure 20.2.

1 In which month is there going to be a negative closing balance?
260
2 What has caused the balance at the end of this month to become negative?

If a business knows in advance that there is going to be a period of cash shortage it
can take action to try to prevent this from happening.

TOP TIP In the cash-flow forecast in Figure 20.2 the negative closing balance in February

You will not be expected to is caused by the outflows for the month being much higher than the infl ows. If
draw up a cash-flow forecast for possible, managers need to increase the inflows or reduce the outfl ows.

IGCSE Business Studies, but you Let’s assume that the payments for February include the purchase of a new
might be asked to fill in missing
delivery van at a cost of $16,000. If the decision to buy this vehicle is delayed by one
numbers.
month then the amended cash-flow forecast will look like the one in Figure 20.3.

Jan Feb Mar
Cash inflow

Receipts 10 15 18
Total inflow 10 15 18
Cash outflows
Payments 7 11 28
Total outflow 7 11 28
Net cash flow 3 4 (−10)
Opening balance 5 8 12
Closing balance 8 12 2

Figure 20.3 Amended cash-flow forecast