Unit 5 - Business Accounting
Prepare a 12-month cash flow forecast to enable an organisation to manage its
cash
What is a cash flow forecast?
A cash flow forecast is an estimate of the timing and amounts of cash inflows and outflows
over a specific period
What is a cash flow forecast used for?
A cash flow forecast can be used by SIGNature for many reasons. First of all, it can help
them to make sure that they are able to afford to pay suppliers and employees. It can also help
SIGNature identify a potential loss in cash balances in advance.
The different terms in cash flow
Opening Balance – This is the amount of money in a business’s accounts from the start of the
accounting period. This can be either when the business is first starting up or after the end of
their current period of financial accounting.
Closing Balance – This is the amount of money remaining in a business’s accounts at the end
of the accounting period which is usually at the end of the year.
Receipt – A business receipt is a written confirmation of transfer of something that has value
such as goods or services.
Overdraft – An overdraft is an extension of credit from a business that lends money made
after an account reaches zero. An overdraft would allow a business the continuous
withdrawal of money even if they have no funds available in the bank.
Payment – This can be in the form of funds, services or assets and is exchanged in order to
get a good or service. The payment has to be agreed with the parties involved in the matter.
VAT (Value added tax) on Sales – This is when tax is applied by a business to a sale price of
one of their products.
Net cash flow – This is the difference between the cash inflows and outflows during a certain
period in a business. It is ultimately the balance remaining after a business minus their cash
outflows from their cash inflows.
Notes to Sharma and Ryan
why a business might experience cash flow problems
why this can cause difficulties
any potential dangers you can see specific to SIGNature’s cash flow
forecast
Page 1 of 2
Prepare a 12-month cash flow forecast to enable an organisation to manage its
cash
What is a cash flow forecast?
A cash flow forecast is an estimate of the timing and amounts of cash inflows and outflows
over a specific period
What is a cash flow forecast used for?
A cash flow forecast can be used by SIGNature for many reasons. First of all, it can help
them to make sure that they are able to afford to pay suppliers and employees. It can also help
SIGNature identify a potential loss in cash balances in advance.
The different terms in cash flow
Opening Balance – This is the amount of money in a business’s accounts from the start of the
accounting period. This can be either when the business is first starting up or after the end of
their current period of financial accounting.
Closing Balance – This is the amount of money remaining in a business’s accounts at the end
of the accounting period which is usually at the end of the year.
Receipt – A business receipt is a written confirmation of transfer of something that has value
such as goods or services.
Overdraft – An overdraft is an extension of credit from a business that lends money made
after an account reaches zero. An overdraft would allow a business the continuous
withdrawal of money even if they have no funds available in the bank.
Payment – This can be in the form of funds, services or assets and is exchanged in order to
get a good or service. The payment has to be agreed with the parties involved in the matter.
VAT (Value added tax) on Sales – This is when tax is applied by a business to a sale price of
one of their products.
Net cash flow – This is the difference between the cash inflows and outflows during a certain
period in a business. It is ultimately the balance remaining after a business minus their cash
outflows from their cash inflows.
Notes to Sharma and Ryan
why a business might experience cash flow problems
why this can cause difficulties
any potential dangers you can see specific to SIGNature’s cash flow
forecast
Page 1 of 2
