Cash is needed to pay business expenses. Cash flow describes how a business receives cash (cash inflow) and spends it (cash outflow).
A cash-flow forecast is important to every business as it estimates the cash it needs to sustain its business operation. Examples of cash inflow and outflow are;
Cash inflow
Revenue from cash sales
Repayment from customers on trade credit
Sale of assets (non-current assets)
Cash from loan
Profits/dividend from other companies a business own
Issuance of new shares
Cash outflow
Loan repayment
General expenses such as utility bills, rent, insurance
Purchase of assets
Payment to suppliers
Taxes
Wages
Payment for goods and services with cash
NET CASH FLOW = CASH INFLOW - CASH OUTFLOW
A positive net cash flow refers to more cash inflow than outflow. Should there be more cash outflow than inflow (negative net cash flow), a business will need to obtain additional financing to sustain its business operation.
RELATED CONCEPTS
Expenses
Revenue/Sales
Short-term Debt
Trade credit
PAST YEAR QUESTIONS
What is meant by a cash flow forecast? (2 marks) May/June 2018/12
Calculate the values for X and Y: Net Cash Flow & Closing Balance (2 marks) May/June 2018/12, Oct/Nov 2018/12 & May/June 2019/13
Calculate the values for X and Y: Opening Balance & Net Cash Flow (2 marks) May/June 2019/13
What is meant by ‘net cash flow’? (2 marks) Oct/Nov 2018/12
Identify and explain two reasons why a cash flow forecast might be important for BVC. (4 marks) May/June 2019/11