How are the opening and closing balances in a cash flow forecast calculated?

The closing balance equals the opening balance plus net cash flow. Each month's closing balance becomes the next month's opening balance.

In March a shop expects cash inflows of £18,500 and cash outflows of £21,200. Calculate its net cash flow for March.

The shop's net cash flow for March is −£2,700. £18,500 − £21,200 = −£2,700.

A business starts April with an opening balance of £3,400, and its net cash flow for April is −£5,100. What is its closing balance?

The closing balance for April is −£1,700. The business will need an overdraft of at least £1,700.

OCR GCSE Business J204

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Finance

Cash flow forecasts

3 things to know
Component 02

Overview

The rows of a cash flow forecast, net cash flow and opening and closing balances with worked examples, anticipating shortages, why banks ask for one, and its limitations.

What you need to know

Answer each one before you reveal it.

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Key term

What is a cash flow forecast?

Key term

What are the main rows of a cash flow forecast?

Key term

State how net cash flow is calculated.

Questions from this subtopic

Each one with the model answer underneath.

1
What is a cash flow forecast?
Model answer
A cash flow forecast predicts the cash coming into and going out of a business over future months. A forecast shows when the bank balance may become negative.
2
What are the main rows of a cash flow forecast?
Model answer
A forecast lists total cash inflows and total cash outflows for each month. Net cash flow, the opening balance and the closing balance follow.
3
State how net cash flow is calculated.
Model answer
Net cash flow equals total cash inflows minus total cash outflows for the period.
4
How are the opening and closing balances in a cash flow forecast calculated?
Model answer
The closing balance equals the opening balance plus net cash flow. Each month's closing balance becomes the next month's opening balance.
5
In March a shop expects cash inflows of £18,500 and cash outflows of £21,200. Calculate its net cash flow for March.
Model answer
The shop's net cash flow for March is −£2,700. £18,500 − £21,200 = −£2,700.
6
A business starts April with an opening balance of £3,400, and its net cash flow for April is −£5,100. What is its closing balance?
Model answer
The closing balance for April is −£1,700. The business will need an overdraft of at least £1,700.

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