Cash flow Forecast
What is a cash flow forecast?
A cash flow forecast is a company's estimate of where and when it will receive it's future income and need to pay it's future expenditure.
A cash flow forecast is much like a household budget except the heading "income" is called receipts and the word "expenditure" is called payments.
A cash flow forecast is much like a household budget except the heading "income" is called receipts and the word "expenditure" is called payments.
Importance of Cash flow Forecast.
- Estimate whether the company has a surplus or a deficit.
- Organise if and when loans will be needed.
- To show future investors and banks the future of the company.
- Organise if and when loans will be needed.
- To show future investors and banks the future of the company.
Before you start, remember that in a Cash flow Forecast:
- Net Cash = Total Receipts - Total payments.
- The Closing Cash of one month carries on to be the opening cash of the following month.
- The total Opening Cash in the total column is the same as the original opening cash.
- Decrease means take the % away.
- Increase means add on the %.
2007 Paper 2 Question 3 - Cash flow Forecast
(A)
This is a Cash Flow Forecast for HARP Ltd. You are required to complete the forecast for the months of April, May, June and July 2008 together with the total column.
The following information should be taken into account:
- Monthly Cash Sales are expected to increase by 25% beginning in July.
- HARP Ltd expects to receive a loan of €150,000 in May.
- Monthly Cash Purchases are expected to increase by 15% beginning in July.
- Light and Heat is expected to decrease by 25% in the months of May and July.
- Wages are expected to remain the same, except in May, where an additional bonus of €8,000 will be paid.
- New motor vehicles will be purchased in May for €155,000.
- Shareholders will be paid a dividend of €15,000 in July.
- Rent is expected to remain the same every month.
(B)
(i) Name two items, other than Cash Sales and loans, that could be entered in the ‘Receipts’ section of a Cash Flow Forecast.
(ii) List two possible ways a business could deal with a Net Cash deficit in a particular month.
(iii) Explain a difference between a Cash Flow Forecast and an Analysed Cash Book.
(Find the solution to part (A) and some sample answers to part (B) at the bottom of the page)
This is a sample question like the ones that may come up in an
exam. You may also be asked to fill in a full cash flow forecast, a revised or
an adjusted cash flow forecast so be sure to go over all of these different in
your exam papers.
This is a Cash Flow Forecast for HARP Ltd. You are required to complete the forecast for the months of April, May, June and July 2008 together with the total column.
The following information should be taken into account:
- Monthly Cash Sales are expected to increase by 25% beginning in July.
- HARP Ltd expects to receive a loan of €150,000 in May.
- Monthly Cash Purchases are expected to increase by 15% beginning in July.
- Light and Heat is expected to decrease by 25% in the months of May and July.
- Wages are expected to remain the same, except in May, where an additional bonus of €8,000 will be paid.
- New motor vehicles will be purchased in May for €155,000.
- Shareholders will be paid a dividend of €15,000 in July.
- Rent is expected to remain the same every month.
(B)
(i) Name two items, other than Cash Sales and loans, that could be entered in the ‘Receipts’ section of a Cash Flow Forecast.
(ii) List two possible ways a business could deal with a Net Cash deficit in a particular month.
(iii) Explain a difference between a Cash Flow Forecast and an Analysed Cash Book.
(Find the solution to part (A) and some sample answers to part (B) at the bottom of the page)
This is a sample question like the ones that may come up in an
exam. You may also be asked to fill in a full cash flow forecast, a revised or
an adjusted cash flow forecast so be sure to go over all of these different in
your exam papers.
Questions:
1.Total Receipts - Total Payments = ?
a) Net Cash
b) Opening Cash
c) Closing Cash
2. Which section would Tax be placed in?
a) Receipts
b) Balance Sheets
c) Payments
3. Which of the following would be put in the Receipts section?
a) Wages
b) Government Grants
c) Purchases
4. A Cash Flow Forecast is a prediction of _____ receipts and payments?
a) Past
b) Future
c) Present
5. What is it called when a company has a positive amount of money left over at the end of the budget?
a) Surplus
b) Deficit
c) Left-overs
6. If the Closing Cash for February is 46,700, what is the Opening Cash for March?
a) 47,000
b) 46,000
c) 46,700
7. Which one of these is a way a business could deal with a deficit Net Cash?
a) Give employee bonuses
b) Purchase new equipment
c) Get a loan
a) Net Cash
b) Opening Cash
c) Closing Cash
2. Which section would Tax be placed in?
a) Receipts
b) Balance Sheets
c) Payments
3. Which of the following would be put in the Receipts section?
a) Wages
b) Government Grants
c) Purchases
4. A Cash Flow Forecast is a prediction of _____ receipts and payments?
a) Past
b) Future
c) Present
5. What is it called when a company has a positive amount of money left over at the end of the budget?
a) Surplus
b) Deficit
c) Left-overs
6. If the Closing Cash for February is 46,700, what is the Opening Cash for March?
a) 47,000
b) 46,000
c) 46,700
7. Which one of these is a way a business could deal with a deficit Net Cash?
a) Give employee bonuses
b) Purchase new equipment
c) Get a loan
00
8. Which of the following are subject to Depreciation?
a) Purchase of a Motor Vehicle
b) A Loan
c) Tax
9. A dividend is ____ ?
a) A type of grant given by the government
b) A sum of money paid to investors of a company
c) When the company goes bankrupt
10. If Light and Heat cost 4,100 in March, but is expected to increase by 15% starting the 1st of May, What is it expected to cost in May?
a) 4,100
b) 8,200
c) 4,715
a) Purchase of a Motor Vehicle
b) A Loan
c) Tax
9. A dividend is ____ ?
a) A type of grant given by the government
b) A sum of money paid to investors of a company
c) When the company goes bankrupt
10. If Light and Heat cost 4,100 in March, but is expected to increase by 15% starting the 1st of May, What is it expected to cost in May?
a) 4,100
b) 8,200
c) 4,715
Sample Answers to 2007 Paper 2 Question 3 - Cash Flow Forecast
(A)
(B)
(i) -EU Grant
-Share Capital.
(ii)- A company van was planned to be bought in May which led to a deficit for that month. To deal with this deficit the business could: 1. Spread the payment of the van over a few months to avoid a deficit. 2. rent the van instead of purchasing it to lower the cost.
(iii)- A Cash Flow Forecast is a companies estimate of where and when it will receive it's future income and need to pay it's future expenditure. An Analysed Cash Book is an account of the actual income and expenditure that the company has. It is filled in as you give and receive money.The difference is that the Cash Flow forecast is a prediction/estimate of receipts and payments that you think you will make, (future) and the analysed cash book is a record of the receipts and payments you have made. (past)
-Share Capital.
(ii)- A company van was planned to be bought in May which led to a deficit for that month. To deal with this deficit the business could: 1. Spread the payment of the van over a few months to avoid a deficit. 2. rent the van instead of purchasing it to lower the cost.
(iii)- A Cash Flow Forecast is a companies estimate of where and when it will receive it's future income and need to pay it's future expenditure. An Analysed Cash Book is an account of the actual income and expenditure that the company has. It is filled in as you give and receive money.The difference is that the Cash Flow forecast is a prediction/estimate of receipts and payments that you think you will make, (future) and the analysed cash book is a record of the receipts and payments you have made. (past)